Recalibrate response to give direct relief and spending support: IMF to India

The economy is expected to bounce back to 8.8 % next fiscal year (growth), an upward revision of the June numbers.


The International Monetary Fund (IMF) has projected the Indian economy to grow by -10.3% ( a contraction) in the current fiscal year – a 5.8 percentage point downward revision of its June forecast. The economy is expected to bounce back to 8.8 % next fiscal year (growth), an upward revision of the June numbers.

India could do more on the fiscal side to provide support to households and firms that have been affected by the shutdowns, IMF economist Mahlar Nabar said, responding to a question from The Hindu at a virtual press briefing on whether the government had responded sufficiently to the pandemic and what more was needed to help the economy recover.

Mr. Nabar suggested that the government “tilt the composition of the fiscal support towards more of the direct spending and tax relief measures” and to rely “slightly less on the liquidity support measures” and “credit guarantees which are clearly important to support the provision of credit in the economy.”

He said, “But if you look at the approach that was taken, there was more of an emphasis on that type of measure. We think that there is room to recalibrate and to provide more direct relief and spending support which could have a first order impact on preventing even worse outcomes. On the monetary policy side the RBI had come in very aggressively early on. It’s paused recently with its interest rate cuts. Looking through this … spike in inflation that they’ve [India] had recently. “But we believe there’s more the RBI can do too.”

There was room to cut if needed and that the IMF thought this should be done once the inflation spike was more under control, he stated.

These fiscal and monetary side policies would, together, put India on a path to recovery going forward, he noted.

“There’s also been some efforts recently on the structural side to improve medium-term growth prospects,” he said, citing progress on labour reform and farm bills.

“We think that this will advance the structural reform agenda in an important way, remove supply side constraints in the agricultural sector and in the labour market. [ It will ] also allow for a better matching of workers with firms, provide firms with a little more flexibility in terms of hiring options but at the same time also provide more social security and safety net options for workers as well,” he observed.

With these structural elements in place as well to reinforce the cyclical support the Indian economy would be well placed to “start recovering from this horrible crisis,” he added.

Source link

Leave a Comment

Your email address will not be published. Required fields are marked *