Press Release: IMF Executive Board Concludes 2016 Article IV Consultation with India
IMF News, March 2, 2016
Source details
- Canonical URL
- Press Release: IMF Executive Board Concludes 2016 Article IV Consultation with India
Other formats
Bibliographic details
- Published: March 2, 2016
Recent developments and macroeconomic backdrop
- Executive Board concluded the Article IV consultation on February 12, 2016.
- Indian recovery supported by a large terms of trade gain (about 2.5 percent of GDP), positive policy actions, and reduced external vulnerabilities.
- Collapse of global oil prices since late 2014 boosted activity, improved current account and fiscal positions, and engendered a sharp decline in inflation.
- Inflation declined from an average of about 9.5 percent during 2011–13 to 5.6 percent in December 2015.
- Supply-side measures (including release of surplus grain buffer stocks) and an appropriate monetary stance contributed to lower inflation.
- Large foreign direct investment inflows in 2015 associated with reduced vulnerabilities and improved growth prospects.
- International reserves increased by $46.7 billion since end-March 2014, standing at US$350.4 billion at end-December 2015 (around 8 months of import cover).
- Key challenges: persistently high household inflation expectations, large fiscal deficits, anemic exports, weaknesses in corporate financial positions and public bank balance sheets.
Growth, inflation, and monetary policy outlook
- Growth projections:
- Growth is projected at 7.3 percent for fiscal year FY2015/16.
- Growth is projected at 7.5 percent in FY2016/17 (at market prices).
- Growth drivers: stronger domestic demand, incipient upturn in private investment, higher public infrastructure investment, government initiatives to tackle supply-side bottlenecks and repair corporate and public bank balance sheets.
- Inflation and monetary stance:
- Reserve Bank achieved its inflation target to bring inflation below 6 percent by January 2016.
- Reserve Bank of India’s inflation goal: around 5 percent for March 2017.
- Despite a 125 basis points nominal policy rate cut in 2015, monetary conditions remain consistent with achieving the 5 percent inflation target by March 2017.
- Near-term headline consumer price inflation dynamics expected to be underpinned by supply-side factors; subpar crop outlook noted.
- Monetary authorities encouraged to stand ready to tighten the stance if warranted.
External position and fiscal outlook
- Current account and external balances:
- Continued low global oil prices expected to help contain the current account deficit at around 1.5 percent of GDP in FY2016/17.
- International reserves: US$350.4 billion at end-December 2015 (around 8 months of import cover); reserves increased by $46.7 billion since end-March 2014.
- Fiscal targets and outcomes:
- FY2015/16 Union budget deficit target of 3.9 percent of GDP (equivalent to about 4.25 percent of GDP in IMF terms) will likely be achieved.
- Directors called for growth-friendly fiscal consolidation to increase fiscal space for priority capital spending and social expenditures.
- Revenue and subsidy reforms emphasized: further reforms of fertilizer and food subsidies, a well-designed goods and services tax, and improved tax administration.
Risks, vulnerabilities, and policy recommendations (Executive Board Assessment)
- Risk balance:
- Overall balance of risks improved but remains tilted to the downside.
- External risks include intensified global financial market volatility, unexpected developments in U.S. monetary policy normalization, or China’s growth slowdown.
- Domestic risks include weak corporate financial positions and public bank asset quality, and potential setbacks in the reform process.
- Upside: further structural reforms and sustained low global energy prices could support stronger growth.
- Directors’ policy recommendations and priorities:
- Preserve external stability: maintain exchange rate flexibility as a key shock absorber, complemented by judicious foreign exchange intervention.
- Sustain reform momentum to boost investor confidence and attract foreign direct investment; cautiously liberalize external commercial borrowings by the private sector.
- Monetary policy: remain appropriately targeted to ensure durable reduction in inflation toward the medium-term target; support with clear policy communication, continued fiscal consolidation, and measures to boost food supply.
- Fiscal policy: articulate and implement credible measures to achieve medium-term fiscal deficit targets and increase fiscal space.
- Structural reforms: address supply-side bottlenecks (especially in agricultural and power sectors), facilitate land acquisition, boost formal sector employment, encourage female labor force participation, and enhance labor market flexibility.
- Financial sector: enhance bank supervision, strengthen prudential regulation for bank asset quality recognition, augment capital buffers, improve corporate governance at public sector banks, enhance the bankruptcy and insolvency framework, and deepen capital markets.
Selected economic indicators and key statistics (highlights)
- Social and population indicators:
- Nominal GDP (U.S. dollars): 2,051 (GDP 2014/15)
- GDP per capita (U.S. dollars): 1,584
- Population total (in billions): 1.30 (2014/15)
- Urban population (percent of total): 32
- Life expectancy at birth (years): 66.0
- Headcount ratio at $1.90 a day (2011): 21.3
- Undernourished (2011): 15.4
- Gini index (2011): 33.6
- Growth and prices (selected years and projections):
- Real GDP (at market prices): 2011/12: 6.6; 2012/13: 5.1; 2013/14: 6.9; 2014/15: 7.3; 2015/16: 7.5 (Proj.)
- Consumer prices - Combined (period average): 2011/12: 9.5; 2012/13: 9.9; 2013/14: 9.4; 2014/15: 5.9; 2015/16: 5.0; 2016/17: 5.3
- Saving, investment, and fiscal balances (percent of GDP):
- Gross saving: 2011/12: 34.7; 2012/13: 31.5; 2013/14: 30.8; 2014/15: 30.2; 2015/16: 29.8; 2016/17: 29.6
- Gross investment: 2011/12: 38.9; 2012/13: 36.3; 2013/14: 32.5; 2014/15: 31.6; 2015/16: 31.1
- Central government deficit: 2011/12: -6.1; 2012/13: -5.1; 2013/14: -4.6; 2014/15: -4.2; 2015/16: -4.0
- General government deficit: 2011/12: -8.1; 2012/13: -7.4; 2013/14: -7.6; 2014/15: -7.0
- General government debt: 2011/12: 68.1; 2012/13: 67.5; 2013/14: 65.8; 2014/15: 66.1; 2015/16: 66.3; 2016/17: 65.7
- Money, credit, and financial indicators:
- Broad money (y/y percent change, end-period): 2011/12: 13.5; 2012/13: 13.6; 2013/14: 13.4; 2014/15: 10.8; 2015/16: 11.1
- Credit to private sector: 2011/12: 17.8; 2012/13: 13.7; 2013/14: 9.2
- 91-day treasury bill yield (end-period): 2011/12: 9.0; 2012/13: 8.9; 2013/14: 8.3; 2014/15: 7.2 (For 2015/16, as of 6 January 2016.)
- 10-year government bond yield (end-period): 2011/12: 8.6; 2012/13: 8.0; 2013/14: 7.8; 2014/15: 7.7 (For 2015/16, as of 6 January 2016.)
- Stock market (y/y percent change, end-period): 2011/12: -10.5; 2012/13: 8.4; 2013/14: 18.7; 2014/15: 24.9; 2015/16: -9.1 (For 2015/16, year-to-date as of 6 January 2016.)
- External trade and balances:
- Merchandise exports (in billions of U.S. dollars): 2011/12: 309.8; 2012/13: 306.6; 2013/14: 318.6; 2014/15: 316.5; 2015/16: 277.9; 2016/17: 280.1
- Merchandise imports (in billions of U.S. dollars): 2011/12: 499.5; 2012/13: 502.2; 2013/14: 466.2; 2014/15: 461.5; 2015/16: 429.8; 2016/17: 449.3
- Terms of trade (G&S, annual percent change): 2011/12: -0.3; 2012/13: 2.3; 2013/14: 3.5; 2014/15: 7.0; 2015/16: 1.8
- Current account balance (in billions of U.S. dollars): 2011/12: -78.2; 2012/13: -88.2; 2013/14: -32.4; 2014/15: -26.7; 2015/16: -27.7; 2016/17: -34.8
- Current account balance (percent of GDP): 2011/12: -4.8; 2012/13: -1.7; 2013/14: -1.3; 2014/15: -1.5
- Foreign direct investment, net (in billions of U.S. dollars): 2011/12: 22.1; 2012/13: 19.8; 2013/14: 21.6; 2014/15: 31.3; 2015/16: 34.2; 2016/17: 37.4
- Portfolio investment, net (equity and debt, in billions of U.S. dollars): 2011/12: 17.2; 2012/13: 26.9; 2013/14: 4.8; 2014/15: 42.2; 2015/16: -6.8; 2016/17: 12.4
- Gross reserves (in billions of U.S. dollars, end-period): 2011/12: 294.4; 2012/13: 292.0; 2013/14: 304.2; 2014/15: 341.6; 2015/16: 364.3; 2016/17: 405.1
- Gross reserves (in months of imports): 2011/12: 6.1; 2012/13: 6.4; 2013/14: 6.7; 2014/15: 7.9
- External debt (in billions of U.S. dollars, end-period): 2011/12: 360.8; 2012/13: 409.4; 2013/14: 446.3; 2014/15: 475.2; 2015/16: 513.3; 2016/17: 550.4
- External debt (percent of GDP, end-period): 2011/12: 19.6; 2012/13: 22.3; 2013/14: 23.8; 2014/15: 23.2; 2015/16: 24.0; 2016/17: 23.6
- Ratio of gross reserves to short-term debt (end-period): 2011/12: 2.1; 2012/13: 1.7; 2013/14: 1.9
- Debt service ratio (percent of current account receipts, excluding grants): 2011/12: 6.0; 2012/13: 7.1
- Exchange rate:
- Exchange rate (rupee/U.S. dollar, end-period): 2011/12: 50.3; 2012/13: 54.4; 2013/14: 61.0; 2014/15: 62.6; 2015/16: 66.8
- Memorandum item:
- Fiscal balance under authorities' definition: 2011/12: -5.8; 2012/13: -4.9; 2013/14: -4.3; 2014/15: -3.8
Source: Press Release: IMF Executive Board Concludes 2016 Article IV Consultation with India (March 2, 2016).