## IMF Executive Board Concludes 2018 Article IV Consultation with India

_IMF News, August 7, 2018_

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## Bibliographic details
- Published: August 7, 2018

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### 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.*

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## References

- [India's Strong Economy Continues to Lead Global Growth](http://www.imf.org/en/News/Articles/2018/08/07/NA080818-India-Strong-Economy-Continues-to-Lead-Global-Growth)
- [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)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2018/08/06/pr18330-india-imf-executive-board-concludes-2018-article-iv-consultation_