## IMF Survey : India’s Economic Picture Brighter, but Investment, Structural Reforms Key

_IMF News, March 11, 2015_

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## Bibliographic details
- Published: March 11, 2015

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### Annual economic health check — outlook and context
- Indian economy is reviving, helped by positive policy actions that have improved confidence and by lower global oil prices.
- India is described as "the bright spot in the global landscape," becoming one of the fastest-growing big emerging market economies.
- New investment project announcements have started to pick up, particularly in the power and transport sectors.
- The IMF notes the need to revitalize the investment cycle and accelerate structural reforms to continue the positive trend.
- Risks noted:
  - External: spillovers from weak global growth and potential global financial market volatility, including as the United States begins to raise its interest rates.
  - Domestic: weaknesses in corporate balance sheets, an increase in corporate leverage in recent years, and worsening bank asset quality that could weigh on growth.

### Growth forecasts and measurement
- Based on revised national accounts, the IMF forecasts:
  - growth will strengthen to 7.2 percent in 2014/15; and
  - rise to 7.5 percent in 2015/16.
- The revised GDP series incorporates numerous conceptual and methodological improvements and portrays a more resilient performance of the services and manufacturing sectors.
- IMF staff report was prepared before the release of the new growth numbers; the IMF will continue to examine the improved GDP methodology and its implications for growth forecasts.

### Inflation and monetary policy
- Inflation has fallen by half to around 5 percent, after hovering around 10 percent for several years.
- The report commends the Reserve Bank of India (RBI) for tightening monetary policy by raising interest rates during 2013–2014.
- The government’s steps to contain food inflation—releasing buffer stocks of cereal and keeping agricultural procurement prices in check—are noted.
- The government’s move to introduce a flexible inflation-targeting framework is called "a clear positive" to help deliver low and stable inflation.

### Fiscal position and public finances
- Central government’s fiscal deficit fell to 4.1 percent of GDP in 2014/15, helped by lower oil prices.
- Government actions cited: deregulation of diesel prices and raising natural gas prices.
- Report suggests further fiscal measures:
  - increase tax revenues, including through better tax administration;
  - control spending through further streamlining of subsidies;
  - boost spending on infrastructure (roads and ports, electricity transmission) and social spending (public health, education) to improve quality of expenditure.
- Policy proposals encouraged:
  - adoption of a national goods and services tax to create a single Indian market by replacing myriad local levies;
  - continued move toward direct cash transfer payments—helped by Aadhaar—to better target subsidies and reduce leakages.

### Structural constraints and reform priorities
- Investment activity remains held back by structural and supply-side constraints.
- Key reform areas identified to raise growth and generate jobs:
  - addressing bottlenecks in the energy, mining and power sectors;
  - increasing investment to help close major infrastructure gaps;
  - simplifying and expediting the process of acquiring land and obtaining environmental clearances;
  - reforming the agriculture sector to ensure greater efficiencies in food procurement, distribution, and storage;
  - making labor markets more flexible to encourage young job-seekers and boost presently low female labor force participation;
  - improving education to meet rising shortages of skilled labor.

### Demographics and labor market challenge
- Within the next 15 years, India will have the largest, and among the youngest, workforces in the world.
- India will need to create jobs for the roughly one hundred million young Indians who will enter the job market in the coming decade.
- Deeper structural reforms are required to raise growth rates and generate sufficient jobs.

*IMF Survey : India’s Economic Picture Brighter, but Investment, Structural Reforms Key — March 11, 2015.*

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## References

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_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar031115a_