The International Monetary Fund remains bullish about India’s growth regardless of the composition of the next government but warned that challenges of inflation, current account deficit and fiscal deficit must be addressed effectively.
“India is not in the intensive care unit. Its growth rate is very good compared to the rest of the world. It is still quite robust. In the longer run, we are very bullish about India,” said senior resident representative of the IMF for India Thomas J Richardson on Thursday.
The IMF in its World Economic Outlook released last week has forecast India’s GDP growth at 5.4 per cent in FY15 and 6.4 per cent in FY16.
“Our sense is that the growth will pick up this year … and rise to just below 7 per cent may be over the medium term or little bit higher if things go well,” he added.
The Indian economy is estimated to grow at 4.9 per cent in FY14.
Addressing an Assocham conference on ‘Immediate priorities for the new finance minister to achieve economic security of India’, Richardson, however, said that India will have to address structural bottlenecks and challenges such as inflation, CAD and fiscal deficit, in order to turn around growth.
“Budget deficit is still on the higher side. Subsidies reform will also be helpful as the fuel subsidy is regressive,” he said.
When asked to spell out priorities for the new government to revive economic growth, Richardson said the government would have to bring the fiscal deficit down and broaden the tax base.
“Those things also contribute to improve the business environment and making India a great place to invest,” he stressed.
Further, introduction of Goods and Services Tax (GST) will improve India’s growth prospects because it will remove trade barriers.
Agreeing with the IMF on the need to remove structural bottlenecks, Rajat Kathuria, director of think tank ICRIER said that corruption is not the main issue for investors. “ Inadequate physical infrastructure and delay in decision making are the two main reasons for low growth,” he said.
“Lack of decision making and business regulations have impacted growth. We need sectoral legislations,” Kapoor said. Sharing similar views, Kathuria said decline in investments have led to slowdown in growth rate.