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GST, land reforms key to boost India's economic growth: IMF

It said total FDI inflows to India increased to $44 billion in 2015, up from $34 billion in 2014


Press Trust of India  |  Beijing 

The International Monetary Fund (IMF) logo is seen at the IMF headquarters building during the 2013 Spring Meeting of the International Monetary Fund and World Bank in Washington
The International Monetary Fund (IMF) logo is seen at the IMF headquarters building during the 2013 Spring Meeting of the International Monetary Fund and World Bank in Washington

Structural reforms, including and in areas like land and labour, will be key to boost India's economic growth potential going forward, IMF said Tuesday.

"India's growth outlook is favourable, with GDP growth projected to strengthen to 7.5% in the current fiscal year, even in the absence of major structural reforms," said Ranil Manohara Salgado, Chief of Regional Studies Division, Asia and Pacific Department of IMF.

IMF today released its Regional Economic Outlook for Asia and Pacific in Hong Kong in which it forecast that economies of China and Japan were expected to further slowdown sharply over the next two years but Asian growth will remain strong due to domestic demand despite weak global trade.

While the growth outlook looked favourable for the Indian economy, implementation of further structural reforms like Goods and Services Tax, (GST), which are stuck in the Parliament is a priority, Salgado said.

"Nonetheless, implementation of is a priority, as it would create a single national market, enhance the efficiency of intra-Indian movement of goods and services, and boost GDP growth further," he said.

Other major reforms, those in the power sector, on land acquisition, in labour markets, and in general to strengthen the business climate, will also be important to increasing India's growth potential, he said.

On the Foreign Direct Investment (FDI) shifting to India in view of its growth potential, Salgado said as a result of several steps taken by the Indian government, the FDI inflows to India are picking up.

"Several steps have been taken in recent years by the Government of India to liberalise and simplify the FDI regime, including raising the ceilings on FDI in many sectors of the Indian economy," he said.

Indeed, partly as a result of these and other reforms, total FDI inflows to India increased to $44 billion in 2015, or 2.1% of GDP, up from $34 billion in 2014, or 1.7% of GDP, which is an encouraging sign, he said.

"Nonetheless, a more conducive business environment is necessary to attract greater FDI into the manufacturing sector and help the success of Make in India initiative," he said.

On China's economic slowdown, Salgado said Chinese economy which slipped to 6.9% last year will further weaken to around 6% in the next three years.

IMF forecast said Chinese economy is expected to grow at 6.5% this year, the lower end of Beijing's official target and 6.2% in 2017.

The Chinese government has fixed 6.5 to 7% as target for the GDP this year.

"We project growth to slow to around 6% in the next three years. Such a slowdown in our view is necessary to address the vulnerabilities in the economy, such as debt overhang, excess housing inventory, and overcapacity in heavy industries," he said.

These adjustments will have short-term costs, but deliver long-term gains in terms of more efficient resource allocation and put the economy on a more-sustainable footing, he said.

"For the medium-term, it is important that the government continues to progress on structural reforms and boost productivity growth.

This will help China maintain its high growth despite the ageing population and needed slowdown in investment, and ensure its continued convergence to high-income status," he said.

About the impact of the economic slowdown on China's job market, he said "the degree of job loss in the industrial sector depends on how forceful the authorities implement the supply-side reform, entailing the exit of non-viable firms in overcapacity sectors", he said.

The current government plan is to lay off 1.8 million workers in the coal and steel sector in the next 3-5 years, he said adding that a more proactive implementation will imply larger layoffs.

Unofficial projections of job losses in China were stated to be about five to six million.

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First Published: Tue, May 03 2016. 18:30 IST