INSUBCONTINENT EXCLUSIVE:
India needs a more ambitious fiscal consolidation roadmap to ensure medium-term debt sustainability amid growing risks to its growth
outlook and shrinking fiscal space, the International Monetary Fund (IMF) said on Friday
The government, however, differed from the Fund, stressing public debt remained sustainable.
In its annual Article IV consultation report,
slow pace of fiscal consolidation means that debt is expected to remain around the current level, before gradually declining from FY26
Announcing further deficit-reduction measures would reduce uncertainty and lower risk premia
at a time when the FY24 Budget is under work
The government faces the dilemma whether to aggressively reduce the fiscal deficit or go for a moderate fiscal consolidation to support
finance ministry has indefinitely deferred amending the Fiscal Responsibility and Budget Management (FRBM) Act, even as it has reaffirmed
its commitment to reduce the fiscal deficit to 4.5 per cent of GDP by FY26, from 6.4 per cent in FY23
monetary tightening under the baseline, the interest rate and growth differential narrow over the projection period
rate-growth differential of 3.5 percentage points, debt would decline to 70 per cent of GDP (its average level before the pandemic) in about
this decade (i.e., nominal growth of about 11 per cent), the debt-to-GDP ratio would reduce sharply with interest rate assumed at about 7
per cent.
The IMF cautioned that a sharp global growth slowdown in the near term would affect India through trade and financial channels
Over the medium term, reduced international cooperation can further disrupt trade and increase financial market volatility
Domestically, rising inflation can further dampen domestic demand and impact vulnerable groups
On the upside, however, successful implementation of wide-ranging reforms or greater-than-expected dividends from the remarkable advances in
to 6.1 per cent in FY24, from an estimated 6.8 per cent in FY23, reflecting the less favourable global outlook and tighter financial
While it projected the current account deficit to increase to 3.5 per cent of GDP in FY23 as a result of higher commodity prices and
strengthening import demand, the Indian authorities claimed it would remain within 3 per cent.
The IMF and the Indian authorities also
discontent, causing capital outflows and slowing of economic growth, and giving rise to economically damaging policies
