{ "title": "Transcript of Conference Call on the Completion of 2017 Article IV Consultation with India", "publication": "IMF News, February 27, 2017", "sourceUrl": "https://www.imf.org/en/news/articles/2017/02/27/tr022217-conference-call-on-india-article-iv", "canonical": "https://www.imf.org/en/news/articles/2017/02/27/tr022217-conference-call-on-india-article-iv", "overlayPath": "/en/news/articles/2017/02/27/tr022217-conference-call-on-india-article-iv/index.md", "summary": "Article IV Consultation mission conducted in the first two weeks of November.", "publishDate": "2017-02-27", "sections": [ { "heading": "Timeline and procedural overview", "content": "- Article IV Consultation mission conducted in the first two weeks of November.\n- Papers completed in the first week of January.\n- IMF Executive Board considered the papers on the 25th of January.\n- Transcript dated Washington, D.C., February 27, 2017; documents embargoed until 9:00 a.m. Washington D.C. time on the publication day." }, { "heading": "Growth performance and outlook", "content": "- Staff estimate of large terms-of-trade gain: \"something in the order of 13 percent cumulative increase since 2013/14.\"\n- Growth revisions due to currency exchange initiative (demonetization):\n - Growth lowered to 6.6 percent in this fiscal year.\n - Growth projected to rebound to 7.2 percent in the next fiscal year.\n - Medium-term path: potential to accelerate to \"above 8 percent\" in the next \"three or four years or so\" if reforms (notably GST) are implemented robustly.\n- Role of domestic demand:\n - Private consumption identified as \"the key macro engine driving India growth.\"\n - Demonetization led to cash shortages cascading into lower private consumption; characterized as a temporary adverse shock expected to dissipate once cash circulation normalizes." }, { "heading": "Inflation and monetary stance", "content": "- CPI inflation described as \"pretty subdued\" reflecting:\n - Collapse in global commodity prices.\n - Positive supply-side measures.\n - Relatively tight monetary stance.\n- Near-term CPI target:\n - Authorities expected to achieve \"less than the 5 percent CPI inflation benchmark by March of this year.\"\n- Medium-term inflation objective:\n - Target of \"4 percent CPI inflation, plus/minus the 2 percent band.\"\n- Policy needs highlighted:\n - Continued supply-side reforms, particularly in agriculture, to dampen repeated food price increases and keep inflation durably low.\n - Measures to relieve impediments to monetary transmission." }, { "heading": "Fiscal stance and recommendations", "content": "- Assessment:\n - \"Current debt and deficit levels afford little room for fiscal policy maneuver in case of shocks.\"\n - Recommendation: \"a substantial, gradual reduction in fiscal deficits and debt levels is advisable.\"\n- Recent and announced targets:\n - Union government consolidation resumed in the current fiscal year.\n - Deficit target for the current fiscal year: \"3.5 percent of GDP under the authority’s definition.\"\n - Announced deficit target for fiscal year 2017-18: \"3.2 percent of GDP.\"\n - Commitment by Finance Minister to reduce the deficit to \"3 percent of GDP in the following years.\"\n- Anchor and debt target:\n - Recommendation to \"anchor the deficit path with a medium-term public debt target.\"\n - IMF staff estimate of a \"safe level of debt\" around \"the 60 to 65 percent of GDP mark.\"\n- Revenue and expenditure policy tools:\n - GST seen as a \"key pillar for fiscal consolidation\" — staff recommendation: a rate structure \"uniform across the territory, has few exemptions,\" include \"key production inputs like electricity or real estate,\" and \"few ratebuckets.\"\n - Enhance quality of spending: continue moves toward direct benefit instruments and further removal of subsidies." }, { "heading": "External sector", "content": "- Current account and reserves:\n - Current account deficit expected to remain \"compressed at something around 1.1 percent of GDP for this fiscal year.\"\n - Reserves at \"around $360 billion as of the end of calendar 2016,\" representing \"about eight months of import cover.\"\n- Medium-term projection:\n - Current account deficit widening to \"about 2 percent of GDP as domestic demand strengthens.\"\n- External risks:\n - Main risk: enhanced global financial market volatility; India expected to be better positioned to withstand volatility than during the \"taper tantrum\" in mid-2013." }, { "heading": "Risks and the impact of demonetization", "content": "- Characterization of demonetization impact:\n - Short-term: \"adverse temporary shock\" reducing consumption and lowering growth in this fiscal year and the next.\n - Medium-term: could be positive if it accelerates move to non-cash payments, enhances tax compliance, widens the tax base, increases bank liquidity, and boosts financial inclusion.\n- Interaction with other reform measures:\n - Demonetization viewed as part of broader reforms increasing transparency and tax compliance (GST, voluntary income disclosure schemes, double taxation avoidance treaties).\n- Quantified effects retained in staff estimates:\n - Growth revisions explicitly stated above (6.6 percent this fiscal year; 7.2 percent next fiscal year).\n - Potential rebound to \"above 8 percent\" in the medium term under favorable implementation." }, { "heading": "Banking sector, asset quality, and resolution", "content": "- Asset Quality Review (AQR) and non-performing loans (NPLs):\n - Recognition phase: AQR moving loans from restructured status to formal NPL recognition; AQR expected to conclude in March 2017.\n - Staff expectation: NPLs to \"keep rising in the near term and then gradually diminish.\"\n - Stress-scenario fiscal cost of recapitalizing public banks: \"something of the order of maybe 1 to 1.5 percent of GDP\" (not part of baseline).\n- Resolution and institutional reforms:\n - New bankruptcy code introduced; expected to accelerate asset resolution but \"will take time\" to operationalize legal and accounting mechanisms.\n - RBI schemes mentioned: SDR scheme, S4A scheme, and other measures to accelerate resolution.\n - Staff note that progress on resolution thus far \"has been relatively slow.\"\n- Discussion of bailout affordability:\n - Staff observed that a banking bailout could be \"affordable and manageable under a reasonable scenario of 40 percent provisioning\" and \"not too drastic even at 70 percent\" provisioning, subject to design and implementation considerations.\n - IMF staff emphasize the importance of design if a centralized \"bad bank\" approach is considered; outcomes depend on institutional setting and specific design." }, { "heading": "Structural reforms and inclusive growth", "content": "- Reforms acknowledged and judged significant:\n - Implementation of GST (pending specifics).\n - Introduction of the new bankruptcy code.\n - Linking Aadhaar identification with bank accounts for direct benefit transfers and improving financial inclusion.\n- Recommended next-phase reforms:\n - Complete and robust implementation of GST.\n - Completion of the UDAY Scheme and reform of public power distribution sector to strengthen operational efficiency of energy distribution companies.\n - Labor market reforms to increase flexibility and improve job creation prospects — critical given demographic trends (about \"100 million young people who are going to join the labor force over the next decade or so\").\n - Further agricultural sector reforms and improvements in food storage, handling, and transport to reduce food inflation pressures (food accounts for \"55 percent of the consumption basket\").\n - Strengthen business environment at center and state levels; develop corporate debt markets as alternative financing channels.\n- Gender and social inclusion:\n - Staff work on gender issues, including Box 7 on the \"worsening girl deficit\" (zero to six years age group).\n - Government flagship Beti Bachao program described with a relatively modest expenditure of \"about $28 million.\"\n - Recommendation: greater coordination and a more holistic approach; more can and should be done to address socioeconomic drivers of son preference and to enhance girls’ education, health outcomes, and financial inclusion." }, { "heading": "Key policy recommendations (summary bullets)", "content": "- Maintain monetary discipline and complete supply-side reforms, particularly in agriculture, to achieve durable low inflation and the medium-term 4 percent CPI target (plus/minus 2 percent).\n- Continue gradual fiscal consolidation; anchor deficit path with a medium-term public debt target (staff estimate: \"60 to 65 percent of GDP\").\n- Implement GST with a uniform rate structure, few exemptions, and inclusion of key production inputs.\n- Accelerate recognition and resolution of bank NPLs:\n - Complete the AQR (end-March 2017).\n - Operationalize bankruptcy code and strengthen resolution frameworks.\n - Consider well-designed centralized approaches (e.g., bad bank) if appropriate; ensure clear design and institutional arrangements.\n- Prioritize labor market reforms and completion of existing reform initiatives (GST, UDAY) to harness demographic dividends and support job creation.\n- Strengthen social and gender-focused programs to raise female labor force participation and address the girl deficit; enhance programs that improve education, health, and financial inclusion for women and girls.\n\nTranscript of Conference Call on the Completion of 2017 Article IV Consultation with India — Washington, D.C., February 27, 2017\n\n---\n\n\n References\n\n- India and the IMF\n- IMF Policy Advice -- A Factsheet\n- Transcripts\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2017/02/27/tr022217-conference-call-on-india-article-iv" } ], "bullets": [ "[Markdown version](/en/news/articles/2017/02/27/tr022217-conference-call-on-india-article-iv/index.md)", "[Structured JSON version](/en/news/articles/2017/02/27/tr022217-conference-call-on-india-article-iv/index.json)", "[Bundle manifest](/en/news/articles/2017/02/27/tr022217-conference-call-on-india-article-iv/bundle-manifest.json)", "Published: February 27, 2017", "Article IV Consultation mission conducted in the first two weeks of November.", "Papers completed in the first week of January.", "IMF Executive Board considered the papers on the 25th of January.", "Transcript dated Washington, D.C., February 27, 2017; documents embargoed until 9:00 a.m. Washington D.C. time on the publication day.", "Staff estimate of large terms-of-trade gain: \"something in the order of 13 percent cumulative increase since 2013/14.\"", "Growth revisions due to currency exchange initiative (demonetization):", "Role of domestic demand:", "CPI inflation described as \"pretty subdued\" reflecting:", "Near-term CPI target:", "Medium-term inflation objective:", "Policy needs highlighted:", "Assessment:", "Recent and announced targets:", "Anchor and debt target:", "Revenue and expenditure policy tools:", "Current account and reserves:", "Medium-term projection:", "External risks:", "Characterization of demonetization impact:", "Interaction with other reform measures:", "Quantified effects retained in staff estimates:", "Asset Quality Review (AQR) and non-performing loans (NPLs):", "Resolution and institutional reforms:", "Discussion of bailout affordability:", "Reforms acknowledged and judged significant:", "Recommended next-phase reforms:", "Gender and social inclusion:", "Maintain monetary discipline and complete supply-side reforms, particularly in agriculture, to achieve durable low inflation and the medium-term 4 percent CPI target (plus/minus 2 percent).", "Continue gradual fiscal consolidation; anchor deficit path with a medium-term public debt target (staff estimate: \"60 to 65 percent of GDP\").", "Implement GST with a uniform rate structure, few exemptions, and inclusion of key production inputs.", "Accelerate recognition and resolution of bank NPLs:", "Prioritize labor market reforms and completion of existing reform initiatives (GST, UDAY) to harness demographic dividends and support job creation.", "Strengthen social and gender-focused programs to raise female labor force participation and address the girl deficit; enhance programs that improve education, health, and financial inclusion for women and girls.", "[India and the IMF](http://www.imf.org/external/country/IND/index.htm)", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[Transcripts](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2017/02/27/tr022217-conference-call-on-india-article-iv/index.md", "json": "/en/news/articles/2017/02/27/tr022217-conference-call-on-india-article-iv/index.json", "bundleManifest": "/en/news/articles/2017/02/27/tr022217-conference-call-on-india-article-iv/bundle-manifest.json" }, "generatedAtUtc": "2026-09-25T20:37:54.009Z" }