145;India doing well, but challenges ahead8217;

An IMF official said India's recent economic performance has been impressive but it must reduce its public debt.

India8217;s recent economic performance has been impressive but it needs to reduce its high public debt and undertake structural reforms to further deregulate its economy to have a sustainable and more broad-based growth, a senior IMF official has said.

8220;8230;India has done remarkably well in recent years. But it faces a number of challenges. It has still high public debt, although it8217;s made impressive progress in reducing its fiscal deficit in the last few years. It8217;s recently been facing some inflation pressures, although they8217;ve taken steps to tighten monetary policy and those appear to have been reasonably effective so far,8221; IMF Director Asia Pacific Department, David Burton said.

8220;And of course, above all, there8217;s a range of structural reforms that India needs to take to further deregulate and open its economy so that it can have more broad-based growth, particularly in the manufacturing sector going forward, to drive growth and to drive the employment creation that it will need, particularly with its relatively young population and the need to provide jobs for new entrants in the labour force.8221;

The economic performances of the two Asian giants, India and China, have generated a lot of optimism but one needs to bear in mind the 8220;difficult challenges8221; that may make their growth unsustainable, Burton said at a briefing while discussing the Outlook for the Asia Pacific.

8220;8230; one can be optimistic about China and India. Both represent remarkable success stories, China8217;s going back a long way. I think the increase in India8217;s growth to high levels is more recent, but nonetheless impressive. That8217;s not to say that both economies don8217;t face a number of difficult challenges going forward if they8217;re to sustain this performance8221;.

On why is it that China and India are so crucial to driving economic growth at the moment, he said that all world economic outlook numbers are calculated on Purchasing Power Parity PPP and the GDPs of the two countries in terms of PPP are very high.

8220;8230;The simple answer is that they8217;re both large economies and they8217;re both growing very fast. And I should point out that all our world economic outlook numbers are done on a PPP basis, so that global growth, and contributions to global growth, are calculated using PPP weights, not market exchange weight rates,8221; he said.

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8220;China has become, over the years, a very open economy on the trade side. Which means it8217;s very much engaged with the rest of the world and the rest of the region. And that means that its economic performance has an important impact on global economic growth8221; Burton added.

8220;And India, too, though it8217;s historically been more closed than China, has been opening up. And it is having a greater impact than it used to through trade channels, although it remains somewhat less open than China8221; he added.

8220;In terms of contribution to growth because the two countries are large and growing fast, they account for a significant portion of world growth. But as we point out in one of the chapters in the Regional Economic Outlook, this question of de-linking from the rest of the world. They China and India do account for a lot of growth, but the initial impetus to growth still comes very much from domestic demand in the rest of the world and not domestic demand generated independently in Asia8221; remarked Steven Dunaway, Deputy Director in the Fund8217;s Asia Pacific Department.