home page 

click here





book store





click here

    finance   overview | corporate news | corporate finance | m&a/jv | insurance 
                                                             market deals | daily news | venture capital | enviro clearance | personal finance | faqs

IMF commends India's continued outstanding economic performance

Executive Board Assessment

Executive Directors commended the authorities on India's continued outstanding economic performance—reflected inter alia in strong growth, enhanced resilience to shocks, and increasing integration with the global economy. The favorable conjuncture and outlook provide a good opportunity to accelerate key reforms to support the government's vision of reducing poverty and creating employment by boosting growth. Directors endorsed the government's reform priorities of fiscal consolidation, financial sector development, and removal of structural bottlenecks as the appropriate means to achieve these objectives.

While recognizing the difficulty in gauging inflation pressures during a period of financial deepening and other structural reforms, Directors agreed that vigilance is needed to guard against any potential risks of overheating. They supported the central bank's stance of continued gradual removal of monetary accommodation. Overperformance on the 2006/07 budget could support this policy stance by channeling the anticipated revenue windfall to deficit reduction. Directors concurred that India's policy of a market determined exchange rate is appropriately promoting flexibility, preserving monetary policy independence, and giving the private sector incentives to manage currency exposures as the capital account opens further. They supported the authorities' gradual approach to capital account liberalization, in step with fiscal consolidation and financial deepening.

Directors commended the improvement in government finances, but called for further progress in reducing public debt to make room for social and infrastructure spending. To achieve the target of bringing the central government's revenue deficit to balance by 2008/09, they recommended steps to broaden the tax base by eliminating corporate income tax incentives, paring exemptions, and reforming interstate taxation to pave the way for a national goods and services tax. On expenditure reform, Directors encouraged the authorities to implement the recommendations of government committees on subsidies, including the introduction of an automatic market-based mechanism for petroleum goods and better targeting of kerosene subsidies. Consideration should also be given to hardening state budget constraints, given that a number of states still face sizable adjustments.

Directors welcomed the strengthening of financial sector supervision, with prudential norms generally in line with international best practices. They advised continued vigilance to guard against pressures on asset quality in the face of rapid credit growth. Useful steps to expose potential vulnerabilities will be comprehensive stress tests and the authorities' self assessment of financial stability and development, while the future implementation of Basel II will give banks incentives to enhance risk management. Directors saw the ongoing deepening and broadening of India's financial markets as key to fostering growth and facilitating greater capital account openness. Recent initiatives to develop money and government securities markets and strengthen regulation of derivatives activities are welcome. Directors encouraged the authorities to press ahead with measures that will further deepen markets, including the expansion of short selling, the consolidation of benchmark issues, and the streamlining of issuance requirements for corporate bonds. To broaden India's investor base and improve channels for funding longer-term investment, the limit on FDI in insurance should be raised and private participation in the pension system permitted.

Directors urged greater progress in addressing structural obstacles to job-intensive, inclusive growth. To help meet India's infrastructure needs, steps should be taken to strengthen implementation capacity and develop strong and independent regulators, as these would bolster investor interest and underpin the authorities' public private partnership initiative. Directors encouraged the consideration of steps to maximize the contribution of Special Economic Zones to India's growth strategy while limiting potential revenue losses. More broadly, efforts should continue to improve the business climate and reform education, as well as to alleviate rural poverty through promoting agricultural growth.

Directors welcomed the government's commitment to multilateral trade liberalization and supported India's intention to play an active role in restarting multilateral trade talks. They welcomed the unilateral extension of duty free, quota free access to the least-developed countries and the continued reduction in trade tariffs. Rapid economic growth provides an opportunity to move tariffs more quickly towards ASEAN levels.


(This is sourced from Public Information Notice (PIN) of IMF)

Click here for more news & stories

  Web banknetindia.com   


Click Here
click here

Advertise | Book Store | About us | Contact us | Terms of use | Disclaimer

© Banknet India | All rights reserved worldwide.
Best viewed with IE 4.00 & above at a screen resolution of 800 x 600 or higher