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India needs fiscal-consolidation path to cut debt: IMF

The IMF, which estimates India’s economy will expand 6.1% in the year through March, is set to reduce the prediction. Photo: Bloomberg

1 min read . Updated: 24 Dec 2019, 07:05 AM IST Bloomberg

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.

Other Highlights

Government debt rose to a three-year high of 68.1% of GDP in fiscal 2019, the IMF said. Its directors recommend India adopts measures to reduce this to the officially adopted target of 60% of GDP.
Consumption-boosting steps -- such as personal tax cuts -- are likely to feature in the budget in February, Abhishek Gupta, an economist at Bloomberg Economics, wrote in a note Monday. The IMF, however, sees no scope for India to provide fiscal stimulus, given that it expects revenue from both income and general-sales taxes to decline this fiscal year.
“Any growth impetus should instead come from other measures," with further easing in monetary policy potentially being warranted, the IMF said.
India’s central bank reduced its benchmark rate five times this year to support the slowing economy. It has introduced measures to bolster rate transmission after lenders failed to fully pass on its 135 basis points of policy easing since February.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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