The International Monetary Fund (IMF) has warned that headwinds from weaknesses in Indian corporate and bank balance sheets, slowing pace of reforms and sluggish exports may weigh on the country’s economic growth.
“Headwinds from weaknesses in India’s corporate and bank balance sheets, a decelerating pace of reforms, and sluggish exports will weigh on growth,” IMF said in a “Note on Global Prospects and Policy Challenges” prepared for the two-day meeting of G20 Finance Ministers and Central Bank Governors’ Meetings concluding on Sunday.
India’s “economy is on a recovery path, helped by lower oil prices, positive policy actions and improved confidence”, the report said.
The reported listed as many as six core areas that need further reforms in India. These are product market, labour, infrastructure, banking, legal system and property rights, and fiscal structural reforms.
“The quality of fiscal consolidation in India should be improved through a comprehensive tax reform (such as introducing the goods and services tax and improving tax administration) and measures to further reduce subsidies,” IMF said.
“With shrinking fiscal buffers, many commodity exporters need to develop new growth models and tackle fiscal adjustment including through reduced but more efficient public expenditures, stronger fiscal frameworks, and mobilising new sources of revenues,” it added.
India has been found to have done well on three out of nine “reform priorities”– innovation, capital market development and trade and FDI liberalisation.
The IMF also said further steps to relax long-standing supply bottlenecks, as well as labour market reforms, are crucial to achieving faster and more inclusive growth in India.
Earlier this week, the IMF marginally lowered India’s growth forecast to 7.4 per cent for 2016 and 2017, from the 7.5 per cent in April, due sluggish recovery in private investment, even as it blamed Brexit for provoking global economic uncertainty.
“In India, economic activity remains buoyant, but the growth forecast for 2016-17 was trimmed slightly, reflecting a more sluggish investment recovery,” the IMF said in its latest update of World Economic Outlook.
“The outcome of the UK vote, which surprised global financial markets, implies the materialisation of an important downside risk for the world economy. As a result, the global outlook for 2016-17 has worsened, despite the better-than-expected performance in early 2016,” the multilateral agency said.
The IMF also lowered the global growth forecast for 2016 by 0.1 percentage point relative to April, to 3.1 per cent.