IMF Executive Board Concludes 2023 Article IV Consultation with India
IMF News, December 18, 2023
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- Published: December 18, 2023
Overview and recent performance
- India’s economy showed robust growth over the past year.
- Headline inflation has, on average, moderated although it remains volatile.
- Employment has surpassed the pre pandemic level; the informal sector continues to dominate while formalization has progressed.
- The financial sector has been resilient—strongest in several years—and largely unaffected by global financial stress in early 2023.
- The current account deficit in FY2022/23 widened as the post-pandemic recovery of domestic demand and transitory external shocks outweighed the impact of robust services exports and proactive diversification of critical oil imports.
- The budget deficit has eased, but public debt remains elevated and fiscal buffers need to be rebuilt.
- India’s 2023 G20 presidency highlighted the country’s role in advancing multilateral policy priorities.
Outlook and projections
- Growth is expected to remain strong, supported by macroeconomic and financial stability.
- Real GDP is projected to grow at 6.3 percent in FY2023/24 and FY2024/25.
- Headline inflation is expected to gradually decline to the target, though it remains volatile due to food price shocks.
- The current account deficit is expected to improve to 1.8 percent of GDP in FY2023/24, supported by resilient services exports and, to a lesser extent, lower oil import costs.
- Foundational digital public infrastructure and a strong government infrastructure program will continue to sustain growth.
- Higher growth potential exists with greater contributions from labor and human capital if comprehensive reforms are implemented.
Risks to the outlook
- Downside risks:
- A sharp global growth slowdown in the near term would affect India through trade and financial channels.
- Further global supply disruptions could cause recurrent commodity price volatility, increasing fiscal pressures.
- Domestic weather shocks could reignite inflationary pressures and prompt further food export restrictions.
- Upside risks:
- Stronger than expected consumer demand and private investment would raise growth.
- Further liberalization of foreign investment could increase India’s role in global value chains, boosting exports.
- Implementation of labor market reforms could raise employment and growth.
Executive Board assessment and recommended policy directions
- Directors broadly agreed with the staff appraisal and commended authorities for prudent macroeconomic policies and reforms that supported strong performance, resilience, and financial stability.
- Fiscal policy:
- Directors welcomed the authorities’ near-term fiscal policy focus on accelerating capital spending while tightening the fiscal stance.
- Recommended ambitious medium-term consolidation efforts given elevated public debt levels and contingent liability risks.
- Improving revenue mobilization and spending efficiency to allow continued improvements in digital and physical infrastructure and targeted social support.
- Encourage a sound medium-term fiscal framework to promote transparency and accountability and align policies with development goals.
- Monetary and exchange rate policy:
- Commended the Reserve Bank of India’s proactive monetary policy actions and strong commitment to price stability.
- Agreed the current neutral monetary policy stance, anchored on a data dependent approach, is appropriate and should gradually bring inflation back to target.
- Exchange rate flexibility should remain the first line of defense in absorbing external shocks; foreign exchange interventions should be limited to addressing disorderly market conditions.
- Noted divergence between staff and authorities on the reclassification of India’s de facto exchange rate regime for December 2022 to October 2023 and encouraged continued engagement to resolve differences.
- Financial sector:
- Welcomed financial sector stability: sustained growth in bank credit, low levels of non-performing assets, and adequate capital and liquidity buffers.
- Called for continued supervision and prudential tools to preserve financial stability and manage emerging vulnerabilities, including rapid growth in unsecured personal loans.
- Advised further strengthening of regulatory and supervisory standards and encouraged public banks to continue building capital buffers.
- Structural and other reforms:
- Encouraged comprehensive structural reforms to leverage favorable demographics and promote job-rich, inclusive, and greener growth.
- Priorities include improving labor market functioning, increasing female labor force participation, and progress on health, education, land, and agricultural reforms.
- Strengthening governance and the regulatory framework to foster transparency and safeguard public accountability.
- Continued progress on designing and implementing climate policies is critical to meet the authorities’ net zero emissions target date.
- Phasing out recent restrictive trade policies, further liberalizing the FDI regime, and improving the investment climate were encouraged.
Key statistics and selected indicators (highlights from Table 1)
- Real GDP (growth, percent): 3.9 (2019/20); -5.8 (2020/21); 9.1 (2021/22); 7.2 (2022/23); 6.3 (2023/24, proj.); 6.3 (2024/25, proj.).
- Consumer prices - Combined (period average, percent): 4.8 (2019/20); 6.2 (2020/21); 5.5 (2021/22); 6.7 (2022/23); 5.4 (2023/24, proj.); 4.6 (2024/25, proj.).
- Gross saving (percent of GDP): 29.2 (2019/20); 29.7 (2020/21); 30.0 (2021/22); 29.1 (2022/23); 29.9 (2023/24, proj.).
- Gross investment (percent of GDP): 30.1 (2019/20); 28.8 (2020/21); 31.2 (2021/22); 31.0 (2022/23); 31.7 (2023/24, proj.); 31.9 (2024/25, proj.).
- Central government overall balance (percent of GDP): -4.8 (2019/20); -8.6 (2020/21); -6.8 (2021/22); -6.5 (2022/23); -6.0 (2023/24, proj.).
- General government overall balance (percent of GDP): -7.7 (2019/20); -12.9 (2020/21); -9.6 (2021/22); -9.2 (2022/23); -8.8 (2023/24, proj.); -8.5 (2024/25, proj.).
- General government debt (percent of GDP): 75.0 (2019/20); 88.5 (2020/21); 83.8 (2021/22); 81.0 (2022/23); 82.0 (2023/24, proj.); 82.4 (2024/25, proj.).
- Broad money (y/y percent change, end-period): 8.9 (2019/20); 12.2 (2020/21); 8.8 (2021/22); 9.0 (2022/23); 10.8 (2023/24, proj.); 7.8 (2024/25, proj.).
- Merchandise exports (billions of U.S. dollars): 320.4 (2019/20); 296.3 (2020/21); 429.2 (2021/22); 456.1 (2022/23); 436.1 (2023/24, proj.); 460.6 (2024/25, proj.).
- Merchandise imports (billions of U.S. dollars): 477.9 (2019/20); 398.5 (2020/21); 618.6 (2021/22); 721.4 (2022/23); 701.1 (2023/24, proj.); 751.7 (2024/25, proj.).
- Current account balance (billions of U.S. dollars): -24.6 (2019/20); 24.0 (2020/21); -38.7 (2021/22); -67.0 (2022/23); -65.5 (2023/24, proj.); -73.0 (2024/25, proj.).
- Current account (percent of GDP): -0.9 (2019/20); 0.9 (2020/21); -1.2 (2021/22); -2.0 (2022/23); -1.8 (2023/24, proj.).
- Gross reserves (billions of U.S. dollars, end-period): 477.8 (2019/20); 577.0 (2020/21); 607.3 (2021/22); 578.4 (2022/23); 619.2 (2023/24, proj.); 673.9 (2024/25, proj.).
- External debt (billions of U.S. dollars, end-period): 558.4 (2019/20); 573.4 (2020/21); 619.1 (2021/22); 624.3 (2022/23); 681.1 (2023/24, proj.); 748.3 (2024/25, proj.).
- External debt (percent of GDP, end-period): 19.7 (2019/20); 21.5 (2020/21); 18.4 (2021/22); 18.7 (2022/23); 18.5 (2023/24, proj.).
Source: IMF Executive Board Concludes 2023 Article IV Consultation with India; December 18, 2023.
