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Medium-term fiscal consolidation remains a priority for India, says IMF Executive Board


Directors broadly supported the authorities’ gradual and cautious approach to capital account liberalization. They encouraged further progress, observing that liberalization could help to ease external financing constraints. Directors also welcomed the authorities’ commitment to trade liberalization.

Directors considered that, while corporate balance sheets have been strong in recent years, slowing economic growth and tighter financing conditions could increase corporate distress. They encouraged the implementation of reforms to strengthen corporate governance and the regulatory framework for corporate restructuring. These measures are also important to improve the investment climate.

Directors acknowledged that the sizeable fiscal stimulus undertaken in 2008-09 should help to support economic growth. However, they stressed that, given the high ratio of public debt to GDP, significant further expansion of the deficit could raise concerns about fiscal sustainability. They encouraged the authorities to use the limited available fiscal space only for high-quality infrastructure and poverty-related spending, and for bank recapitalization if needed.



They advised that any further short-term stimulus be combined with fiscal reforms to safeguard medium-term debt sustainability. In this connection, they encouraged the authorities to take advantage of falling international fuel prices by moving expeditiously with their fuel subsidy reform plan, while ensuring that a well-targeted social safety net is in place.

Directors stressed that medium-term fiscal consolidation remains a priority, and should continue to be anchored in a fiscal rules framework. They were encouraged that the authorities are considering a strengthened successor fiscal framework to replace the existing one when it expires in 2009-10. Directors called for the new framework to be backed by comprehensive expenditure reforms and measures to broaden the tax base.

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(This is Public Information Notice by the Executive Board of the International Monetary Fund (IMF) released after conclusion of the Article IV consultation with India)

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