26/12/2019 - Indian Economy

KEY POINTS

·        The IMF has listed reform measures that might help India increase economic growth to the baseline medium-term potential of 7.3 per cent.

·        The clean-up of bank balance sheets should be completed along with strengthening governance in public sector banks (PSBs) and better oversight of non-banking financial companies (NBFCs).

·        Although the government has infused a significant amount of capital into PSBs, there is practically no movement in terms of governance reforms. Further, the central bank will need to augment regulatory capacity for better oversight of the system, including the NBFC sector.

·        Fiscal consolidation in the medium term should be anchored to the recommendations of the Fiscal Responsibility and Budget Management Act review committee.

·        General government debt needs to be brought down to 60 per cent of gross domestic product (GDP) from about 69 per cent in 2018-19.

·        Fiscal consolidation would require savings through rationalisation of subsidies and augmenting revenues by expanding the tax base.

·        This will help reduce the crowding out caused by higher public sector borrowing requirement, which exceeds the net household financial savings of 6.6 per cent of GDP.

·        The government should focus on reforms in product, labour and land markets. Since the policy space on the fiscal side is virtually non-existent and there are limitations to the extent monetary policy can support growth in the given macro environment, the government should focus on wider reforms that will help increase growth in the medium term.

·        For instance, comprehensively addressing the problems in the goods and services tax system will not only help augment revenue but also improve the ease of doing business.

·        Further, there is a strong case for trade liberalisation to support growth and employment.

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Please review. Thank you.