New Delhi: As the Indian economy recovers from the twin shocks of demonetisation and implementation issues associated with the Goods and Services Tax (GST) due to a pick-up in investment, the government should use the opportunity to frontload its fiscal consolidation, the International Monetary Fund (IMF) said on Wednesday.
The Fund stressed the need of taking advantage of the projected acceleration of growth to achieve a public debt level of 60% of GDP by 2022-23, as recommended by the Fiscal Responsibility and Budget Management Review Committee. The government in its 2018-19 Budget had announced that it will achieve the target, but with a two-year delay in 2024-25.
“The Centre has consolidated from high deficit levels in the last few years. A faster pace of consolidation would help cap the rise in long-term bond yields, reduce external and banking vulnerabilities, and improve market confidence," the IMF said in its report prepared after the Article 4 consultation with Indian authorities.
Further reforms and continued measures to raise tax buoyancy will help in adopting a more ambitious medium-term fiscal consolidation path, it added.
However, during the consultation, the finance ministry seemed to have differed from the IMF.
“While underscoring the importance of medium-term fiscal consolidation, they (Indian authorities) felt that a gradual pace was called for because of the need to support growth and development," the report said.
Finance ministry officials were hopeful that taxing fuels such as aviation fuel and natural gas under GST would be relatively easy, but including other products such as petrol, diesel, and immovable property would be more challenging, since they were key revenue earners for states. “In the Indian context, pruning exemptions would also be difficult," the Indian authorities maintained.