## IMF Survey: India: Rapid Growth with Promising Medium-term Prospects

_IMF News, January 5, 2011_

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## Bibliographic details
- Published: January 5, 2011

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### Economic outlook and growth
- Real GDP growth projected at 8¾ percent in 2010/11.
- Growth described as above trend for 2010/11 and expected to remain high over the medium term.
- Recovery since mid-2009 powered by domestic demand; growth supported by high investment in infrastructure and productivity gains.
- India’s growth rate remains among the strongest in the world.

### Fiscal policy and consolidation
- IMF backs exit from crisis-era stimulus but notes the exit strategy remains incomplete.
- Fiscal policy is preferred for tightening given:
  - high level of government debt,
  - existing strong domestic demand,
  - large capital inflows.
- Government has laid out an ambitious roadmap to reduce public debt and deficits; high growth is expected to contribute to consolidation.
- Policy recommendations:
  - Speed up return to pre-crisis monetary and fiscal policies.
  - Carry through fiscal consolidation while raising public investment, especially in infrastructure, and improving social outcomes by finding savings elsewhere.
  - Undertake subsidy reforms—particularly liberalization of diesel and fertilizer prices.
  - Implement more efficient spending and strengthen the budget framework to minimize risks to fiscal consolidation.
  - Take advantage of the government’s strong revenue position this year to reconstitute fiscal space faster and reduce the risk of overheating.

### Monetary policy and inflation
- Inflation currently elevated in the range of 8½—10½ percent.
- Inflation expected to come down slowly as last year’s high food prices caused by poor rainfall drop out of the inflation calculation, but underlying price pressures remain strong.
- Authorities have raised policy rates and the cash reserve requirement over the last year.
- IMF recommends further tightening monetary policy to:
  - meet the authorities’ inflation objectives,
  - anchor inflation expectations,
  - bring real short-term interest rates in line with historical norms,
  - contain inflation.
- Observation: With little or no spare capacity and the threat of rising food prices, a greater burden falls on monetary policy to cool the economy when fiscal withdrawal was delayed.

### External sector and capital flows
- Current account deficit projected to reach 3.3 percent of GDP in 2010/11 and 3.5 percent next year.
- The deficit has been financed mainly by foreign direct investment and equity inflows to date.
- Risks identified:
  - Potential impact of a sudden stop or reversal of capital flows as the deficit rises.
  - Inflows could exceed India’s capacity to absorb them.
- Policy guidance:
  - Exchange rate appreciation should remain the first line of defense against disruptive inflows.
  - If appreciation becomes too large, consider intervention in the foreign exchange market or macroprudential measures.
  - Over time, deepen the corporate bond market, increase the supply of shares, and further liberalize foreign direct investment to increase capacity to absorb capital.

### Infrastructure investment and structural reforms
- Infrastructure investment has grown rapidly; authorities plan to double spending from $500 billion in the five years ending 2011/12 to $1 trillion in the following half a decade.
- Private participation expected to account for half of the total.
- Obstacles to meeting targets include:
  - availability of financing,
  - land acquisition,
  - multiple clearances,
  - capacity constraints,
  - governance issues,
  - sector-specific concerns.
- IMF view and recommendations:
  - Structural reforms are needed to lower the cost of infrastructure, encourage private investment, and allow more efficient use of public resources.

*Source: IMF Survey: India: Rapid Growth with Promising Medium-term Prospects.*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [The press release](http://www.imf.org/external/np/sec/pn/2011/pn1102.htm)
- [Asia Outlook 2011](http://www.imf.org/external/pubs/ft/survey/so/2011/CAR010511A.htm)
- [India and the IMF](http://www.imf.org/external/country/IND/index.htm)
- [Asia: consolidating recovery](http://www.imf.org/external/pubs/ft/survey/so/2010/SurveyartD.htm)
- [Asia and the IMF](http://www.imf.org/external/region/apd/index.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar010511b_