IMF Executive Board Concludes 2018 Article IV Consultation with India
IMF News, August 7, 2018
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- Published: August 7, 2018
Overview
- Date: August 7, 2018.
- Main message: Stability-oriented macroeconomic policies and progress on structural reforms continue to bear fruit; recovery underway after disruptions from the November 2016 currency exchange initiative and July 2017 GST rollout.
- Press Release No. 18/330.
Macroeconomic developments and challenges
- Growth:
- Growth slowed to 6.7 percent in FY2017/18 after prior disruptions; recovery led by an investment pickup.
- Inflation:
- Headline inflation averaged 3.6 percent in FY2017/18 (a 17-year low).
- Medium-term headline inflation rose to 4.9 percent in May 2018, above the mid-point of the RBI’s target band of 4 percent ± 2 percent.
- External sector:
- Current account deficit (CAD) widened to 1.9 percent of GDP in FY2017/18, on rising imports and oil prices.
- Gross international reserves: US$424.5 billion at end-March 2018 (about 8 months of prospective imports of goods and services); declined to US$407.8 billion in the third week of June 2018.
- Fiscal and public debt:
- Persistently-high household inflation expectations and large general government fiscal deficits and debt remain key macroeconomic challenges.
- Financial sector:
- Systemic macro-financial risks persist; weak credit cycle could impair growth and the sovereign-bank nexus has created vulnerabilities.
Near-term outlook and projections (IMF staff)
- Growth projections:
- FY2018/19: 7.3 percent.
- FY2019/20: 7.5 percent.
- Medium-term expectation: growth expected to rise to 7¾ percent.
- Inflation projection:
- Headline inflation projected at 5.2 percent in FY2018/19.
- Current account:
- CAD projected to widen to 2.6 percent of GDP (driven by rising oil prices and strong demand for imports, offset by a slight increase in remittances).
- Policy actions:
- Monetary policy was tightened in early June 2018.
- Fiscal consolidation expected to resume in FY2018/19, with FY2018/19 Union Budget deficit target of 3.3 percent of GDP (equivalent to 3.6 percent of GDP in IMF terms).
- Financial sector reforms undertaken to address twin balance sheet problems and revive bank credit.
Risks (tilted to the downside)
- External risks:
- Further increase in international oil prices.
- Tighter global financial conditions.
- Retreat from cross-border integration, including spillover risks from a global trade conflict.
- Rising regional geopolitical tensions.
- Domestic risks:
- Tax revenue shortfalls related to continued GST implementation issues.
- Delays in addressing twin balance sheet problems and other structural reforms.
Executive Board assessment and policy recommendations
- Fiscal policy:
- Continued fiscal consolidation needed to reduce public debt.
- Target: achieve a public debt level of 60 percent of GDP by FY2022/23 (as recommended by India’s Fiscal Responsibility and Budget Management Review Committee).
- Directors emphasized reaching this year’s budget target and taking corrective actions if required.
- Encourage enhancing GST compliance and scope for simplifying the framework.
- Monetary and exchange rate policy:
- Supported recent tightening of monetary policy; further gradual tightening likely needed to anchor expectations and maintain credibility.
- Welcomed authorities’ commitment to a flexible exchange rate; FX intervention should remain two‑sided and limited to disorderly market conditions.
- Macro‑financial and structural reforms:
- Stress on accelerating initiatives to address high non‑performing loans in public sector banks and corporate sector leverage.
- Importance of a comprehensive plan to improve governance, internal controls, and operations of public sector banks; consider more rapid withdrawal of public ownership.
- Capital flow management framework moving toward greater liberalization, notably in foreign direct investment.
- Further liberalization of trade and foreign investment would be beneficial; authorities’ commitment to a multilateral rules‑based trade system welcomed.
- Emphasized modernizing labor laws and regulations and measures to increase formal employment, particularly for women, to boost productivity and harness the demographic dividend.
- Land reforms remain essential to facilitate infrastructure development, raise agricultural productivity, and foster rapid inclusive growth.
Selected social and economic indicators (highlights extracted from table)
- GDP (2017/18) nominal (in billions of U.S. dollars): 2,602.
- GDP per capita (U.S. dollars) (IMF staff est.): 1,942.
- Headcount ratio at $1.90 a day (2011): 21.2.
- Undernourished (2015): 14.5.
- Population total (in billions, 2016/17): 1.32.
- Urban population (percent of total): 33.1.
- Life expectancy at birth (years, 2015/16): 68.3.
- Gini index (2011): 35.2.
- Real GDP growth (selected years):
- 2014/15: 7.4
- 2015/16: 8.2
- 2016/17: 7.1
- 2017/18: 6.7
- 2018/19 (Est.): 7.3
- 2019/20 (Projections): 7.5
- Consumer prices — Combined (period average):
- 2014/15: 5.8
- 2015/16: 4.9
- 2016/17: 4.5
- 2017/18: 3.6
- 2018/19 (Est.): 5.2
- 2019/20 (Projections): 4.8
- Gross saving (percent of GDP):
- 2014/15: 33.0
- 2015/16: 30.7
- 2016/17: 29.7
- 2017/18: 28.8
- 2018/19 (Est.): 29.6
- 2019/20 (Projections): 30.0
- Gross investment (percent of GDP):
- 2014/15: 34.2
- 2015/16: 31.8
- 2016/17: 30.3
- 2017/18: 30.6
- 2018/19 (Est.): 32.2
- 2019/20 (Projections): 32.2
- Central government overall balance (percent of GDP):
- 2014/15: -4.5
- 2015/16: -4.1
- 2016/17: -3.7
- 2017/18: -4.0
- 2018/19 (Est.): -3.6
- 2019/20 (Projections): -3.5
- General government debt (percent of GDP):
- 2014/15: 67.8
- 2015/16: 69.6
- 2016/17: 68.9
- 2017/18: 70.4
- 2018/19 (Est.): 68.7
- 2019/20 (Projections): 67.2
- Bank credit to the private sector (y/y percent change, end-period):
- 2014/15: 9.3
- 2015/16: 10.6
- 2016/17: 8.0
- 2017/18: 9.8
- 2018/19 (Est.): 13.6
- 2019/20 (Projections): 13.3
- Merchandise exports (in billions of U.S. dollars):
- 2014/15: 316.5
- 2015/16: 266.4
- 2016/17: 280.1
- 2017/18: 309.0
- 2018/19 (Est.): 349.7
- 2019/20 (Projections): 385.0
- Merchandise imports (in billions of U.S. dollars):
- 2014/15: 461.5
- 2015/16: 396.4
- 2016/17: 392.6
- 2017/18: 469.0
- 2018/19 (Est.): 546.6
- 2019/20 (Projections): 592.2
- Current account balance (in billions of U.S. dollars):
- 2014/15: -26.8
- 2015/16: -22.1
- 2016/17: -15.2
- 2017/18: -48.7
- 2018/19 (Est.): -70.6
- 2019/20 (Projections): -68.3
- Current account balance (percent of GDP):
- 2014/15: -1.3
- 2015/16: -1.1
- 2016/17: -0.7
- 2017/18: -2.6
- 2018/19 (Est.): -2.2
- Gross reserves (in billions of U.S. dollars, end-period):
- 2014/15: 341.6
- 2015/16: 360.2
- 2016/17: 370.0
- 2017/18: 424.5
- 2018/19 (Est.): 420.4
- 2019/20 (Projections): 434.7
- External debt (in billions of U.S. dollars, end-period):
- 2014/15: 474.7
- 2015/16: 485.0
- 2016/17: 471.8
- 2017/18: 514.4
- 2018/19 (Est.): 559.3
- 2019/20 (Projections): 609.5
- Exchange rate (rupee/U.S. dollar, end-period):
- 2014/15: 62.6
- 2015/16: 64.8
- 2016/17: 65.0
Source: IMF Executive Board Concludes 2018 Article IV Consultation with India; August 7, 2018.