India needs fiscal-consolidation path to cut debt: IMF
The Indian Express
Last month, Moody’s Investors Service reduced the nation’s
credit-assessment outlook to negative, citing issues ranging from a worsening
shadow banking crunch and a prolonged slowdown in the economy to rising public
debt.
India needs to consolidate its finances
by curbing expenditure and boosting taxes to trim its debt, the International
Monetary Fund said.
“A credible medium-term fiscal
consolidation path driven by subsidy-spending rationalization and tax-base
enhancing measures is needed to reduce debt, free up financial resources for
private investment, and reduce the interest bill,” the Washington-based fund
said in a staff report following its latest regular review of the economy,
known as an article IV consultation.
The IMF, which estimates India’s economy
will expand 6.1% in the year through March, is set to reduce the prediction
amid continuing weakness signaled by a decrease in rural consumption and lower
business sentiment, Chief Economist Gita Gopinath said in an interview last week.
The central bank recently cut its full-year GDP expansion forecast to 5% from
6.1%, after quarterly growth slowed to a six-year low.
Last month, Moody’s Investors Service
reduced the nation’s credit-assessment outlook to negative, citing issues
ranging from a worsening shadow banking crunch and a prolonged slowdown in the
economy to rising public debt. The ratings company is projecting a budget
deficit of 3.7% of GDP in the year through March, a breach of the government’s
3.3% target.
-Government debt rose to a three-year
high of 68.1% of GDP in fiscal 2019, the IMF said. Its directors recommend
India adopts measures to reduce this to the officially adopted target of 60% of
GDP.
Consumption-boosting steps — such as
personal tax cuts — are likely to feature in the budget in February, Abhishek
Gupta, an economist at Bloomberg Economics, wrote in a note Monday. The IMF,
however, sees no scope for India to provide fiscal stimulus, given that it
expects revenue from both income and general-sales taxes to decline this fiscal
year.
“Any growth impetus should instead come
from other measures,” with further easing in monetary policy potentially being
warranted, the IMF said.
India’s central bank reduced its
benchmark rate five times this year to support the slowing economy. It has
introduced measures to bolster rate transmission after lenders failed to fully
pass on its 135 basis points of policy easing since February.
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