Table of Contents
CURRENT AFFAIR
- The Article IV Consultation document of the IMF released recently is much more optimistic than the recent commentaries on Indian economy.
ANALYSIS
- The policy prescriptions are based on the data available until October, 2019 and do not include the estimates of the second quarter GDP.
- While noting that the first quarter growth was low at 5%, it expects growth to rebound in the remaining
REASONS
- accommodative monetary policy
- actions to facilitate its transmission
- ensuring liquidity
- support by the government to augment rural
- Investment
- Private Consumption
What does the report present?
- The IMF report presents two scenarios for the future – one baseline and another with reforms.
BASELINE
- Under this scenario, growth is expected to accelerate to a medium term potential of 7.3%.
- This can be achieved by continued commitment to inflation targeting, gradual macro-financial and structural reforms, including the lagged effect of earlier reforms.
- These reforms include implementation of the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC) and measures to liberalise FDI flows, and further improve the ease of doing business.
REFORMS
- In this scenario, it recommends many reforms to boost inclusive growth which will help spur productivity and
Three pillars of reform
- Clean-up of bank balance sheets
- Fiscal consolidation
- Reform of the markets
Risks
- The IMF report states that the downside risks to growth can arise.
- They may arise from the inability to undertake structural reforms, shortfalls in revenue collections, slowness in cleaning up the balance sheets of the PSBs and corporate.
- Subdued credit growth arising from risk aversion from the banks and external factors
GOVERNMENT’S ROLE
- Pursue the medium-term fiscal consolidation.
- Fiscal stimulus should be avoided.
- Immediate focus should be to make more realistic revenue projections, enhance fiscal transparency and make the budgetary coverage more comprehensive to avoid off-budget borrowings.
Constraints
- Both the investment and private consumption as ratio of GDP, declining, and exports are virtually stagnant.
- So, the only way to trigger a virtuous cycle of investment and growth, in the present juncture, may have to come from public investments.
- The cleaning up of the balance sheets of the banks and corporate have been a slow process.
FORECAST
- According to the report, the growth impetus should essentially come from monetary policy and structural
WAY AHEAD
- Accelerate public investments.
- Establish an independent Fiscal Council reporting to the Parliament by amending the FRBM Act as recommended by the 14th Finance Commission.
FISCAL COUNCIL
- Evaluating the realism of the forecasts,
- Bring out off-budget transactions to ensure greater transparency,
- Realistically estimating cost of various schemes and programmes announced by the government from time to time.
Latest Burning Issues | Free PDF
WhatsApp