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India’s headline deficit is expected to see a modest improvement this fiscal, according to the International Monetary Fund (IMF). But, to further consolidate its finance the IMF wants India to cut down subsidies and continue raising taxes on petrol.
In its Fiscal Monitor, which is a report on World Economic and Financial Surveys that was released on Wednesday, the IMF has pegged India’s general government fiscal deficit at 6.4 per cent in 2017 and 6.3 per cent in 2018. This is a significant improvement from its projected deficit of 6.6 per cent in 2016.
It also expects general government debt to improve to 67.8 per cent of the GDP in 2017 and further to 66.1 per cent of the GDP in 2018 from a projected 69.5 per cent of the GDP last year.
“In India, the headline deficit is projected to decline modestly in fiscal year 2017-18, with continued delay in reaching the medium-term deficit target,” said the report.
The multilateral agency however, commended the government for accepting the recommendation of the NK Singh Committee and said the country is working to strengthen its fiscal responsibility framework by anchoring its fiscal adjustment to general government debt and trying to achieve a debt-to-GDP ratio of 60 per cent by 2022-23.
Thumbs-up to BudgetThe IMF report also gave a thumbs-up to the Budget and said it “envisages a growth-friendly fiscal adjustment” along with expenditure cuts without impacting infrastructure investment and also more progressive income taxes for individuals combined with lower taxes on small and medium-sized enterprises.
The expected roll out of the goods and services tax will also enhance efficiency and create a common national market.
The report also said that India should continue to raise taxes on petroleum products while oil prices remain low to raise additional revenue. Simultaneously, it should also generate savings by better targeting of expenditure.
“India’s food and fertilizer subsidy regime through better targeting and efficiency could generate substantial fiscal gains,” it said.
Meanwhile, the IMF’s Global Financial Stability Report, which was also released on Wednesday, raised concerns over the health of the country’s banking sector.
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