Money & Banking

Labour, land reforms vital for boosting biz climate: IMF

Our Bureau New Delhi | Updated on December 24, 2019 Published on December 24, 2019

The agency retains GDP growth estimate at 6.1%; risks to outlook tilted to downside

The International Monetary Fund’s (IMF) Executive Board has advised India to complement its effort to strengthen the business climate with continued labour, product market, land, and other reforms aimed at increasing labour market flexibility, enhancing competition, and reducing the scope for corruption.

“This will help harness India’s demographic dividend by creating more and better jobs for the rapidly-growing labour force and enhancing female labour force participation,” the Board said in its assessment.

Though the report, noted that the macroeconomic outlook is more subdued and uncertain than in recent years, it still retained the growth rate for the current fiscal at 6.1 per cent. Investment and private consumption are expected to be firm in the second half of the fiscal year.

This is expected to be supported by the lagged effects of monetary policy easing, recent measures to facilitate monetary policy transmission and address corporate and environmental regulatory uncertainty, and government programmes to support rural consumption being rolled out.

Medium-term potential

Over the medium term, growth is projected to gradually rise to its medium-term potential of 7.3 per cent on continued commitment to inflation targeting, gradual macro-financial and structural reforms, including implementation of reforms initiated earlier, such as the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC), as well as ongoing steps to liberalise FDI flows and further improve the ease of doing business.

The report highlighted recent changes in economic parameters and policies and listed risks. It believes risks are tilted to downside and include tax revenue shortfalls and delays in structural reforms. Credit growth could also remain subdued, as there is a perception of increased risk aversion among banks and implementation of the recently announced public sector bank consolidation could divert focus and weigh on near-term credit growth.

The main external risks pertain to higher oil prices, a sharp rise in risk premia in global financial markets, and rising protectionism globally.

The report highlighted that inflation targeting has contributed to macroeconomic stability by better anchoring inflation expectations, thus helping improve the economic well-being of low-income households.

It suggested that transmission of policy rate cut should be improved to “enhance the effectiveness of monetary policy and enable the central bank to achieve the medium-term inflation target on a sustained basis”.

Published on December 24, 2019
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