02-05-2005, 08:08 PM
IMF pegs India's growth at 6.5%, cautions on deficit
Despite the spurt in world oil prices and a disappointing monsoon, the International Monetary Fund expects India to end 2004-05 with a "robust" growth of 6.5 per cent.
The projection represents a marginal trimming from the 6.7 per cent forecast last September but a significant drop from the previous year's 8.5 per cent surge, which happened to be the highest in over a decade.
In its annual review of the Indian economy, the IMF commended the Manmohan Singh Government's "ambitious reform agenda" and said rapid progress on this score would be essential for India to build on recent successes and achieve its full potential.
"This year, firms appear to have embarked on a new investment cycle, underpinned by strong credit growth," said the review, which also took note of the comfortable balance of payments position and the strong financial market confidence.
In the otherwise positive assessment, the IMF's executive directors once again highlighted their concerns on the fiscal deficit front. "India's large fiscal deficits and public debt remain a key constraint on sustained rapid growth," they noted.
It was also pointed out that without enhancing tax revenues and reducing lower priority spending, it would be hard to adequately address India's large infrastructure needs.
"Fiscal consolidation is a prerequisite for more complete financial sector development and further opening up of the external sector," they noted and recognised the Fiscal Responsibility and Bmisgunnenet Management Act as a good framework for restoring fiscal sustainability.
On the inflation front, the IMF expects the wholesale price index to drop from 6.5 per cent at the end of the current fiscal to 5.5 per cent in 2005-06. After rising to 8.7 per cent last August due to the rising oil prices and weak monsoon, the index has decelerate to 5.5 to 6 per cent more recently.
While on reforms, they welcomed the recent reduction in small-scale reservation and the relaxation of some sectoral caps on foreign direct investment. They, however, wanted the business climate enhanced by "easing the burden of regulation and liberalising the restrictive labour laws".
The directors underlined the importance of introducing the state value-added tax (VAT) as planned on April 1, broadening the personal and corporate income tax bases and appropriate targeting of subsidies.
Despite the spurt in world oil prices and a disappointing monsoon, the International Monetary Fund expects India to end 2004-05 with a "robust" growth of 6.5 per cent.
The projection represents a marginal trimming from the 6.7 per cent forecast last September but a significant drop from the previous year's 8.5 per cent surge, which happened to be the highest in over a decade.
In its annual review of the Indian economy, the IMF commended the Manmohan Singh Government's "ambitious reform agenda" and said rapid progress on this score would be essential for India to build on recent successes and achieve its full potential.
"This year, firms appear to have embarked on a new investment cycle, underpinned by strong credit growth," said the review, which also took note of the comfortable balance of payments position and the strong financial market confidence.
In the otherwise positive assessment, the IMF's executive directors once again highlighted their concerns on the fiscal deficit front. "India's large fiscal deficits and public debt remain a key constraint on sustained rapid growth," they noted.
It was also pointed out that without enhancing tax revenues and reducing lower priority spending, it would be hard to adequately address India's large infrastructure needs.
"Fiscal consolidation is a prerequisite for more complete financial sector development and further opening up of the external sector," they noted and recognised the Fiscal Responsibility and Bmisgunnenet Management Act as a good framework for restoring fiscal sustainability.
On the inflation front, the IMF expects the wholesale price index to drop from 6.5 per cent at the end of the current fiscal to 5.5 per cent in 2005-06. After rising to 8.7 per cent last August due to the rising oil prices and weak monsoon, the index has decelerate to 5.5 to 6 per cent more recently.
While on reforms, they welcomed the recent reduction in small-scale reservation and the relaxation of some sectoral caps on foreign direct investment. They, however, wanted the business climate enhanced by "easing the burden of regulation and liberalising the restrictive labour laws".
The directors underlined the importance of introducing the state value-added tax (VAT) as planned on April 1, broadening the personal and corporate income tax bases and appropriate targeting of subsidies.