India needs to consolidate its finances by curbing expenditure and boosting taxes to trim its debt, the International Monetary Fund said.
“A credible medium-term fiscal consolidation path driven by subsidy-spending rationalization and tax-base enhancing measures is needed to reduce debt, free up financial resources for private investment, and reduce the interest bill,” the Washington-based fund said in a staff report following its latest regular review of the economy, known as an article IV consultation.
The IMF, which estimates India’s economy will expand 6.1% in the year through March, is set to reduce the prediction amid continuing weakness signaled by a decrease in rural consumption and lower business sentiment, Chief Economist Gita Gopinath said in an interview last week. The central bank recently cut its full-year GDP expansion forecast to 5% from 6.1%, after quarterly growth slowed to a six-year low.
Last month, Moody’s Investors Service reduced the nation’s credit-assessment outlook to negative, citing issues ranging from a worsening shadow banking crunch and a prolonged slowdown in the economy to rising public debt. The ratings company is projecting a budget deficit of 3.7% of GDP in the year through March, a breach of the government’s 3.3% target.
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