Imf, Rbi Officials Hold Raft Of Meets

A staff team of the International Monetary Fund (IMF) held a series of meetings with the Reserve Bank of India (RBI), financial institutions and the Indian Banks' Association (IBA) over the last couple of days in Mumbai.

The meetings are aimed at eliciting the institutions views on developments on the credit and monetary fronts, progress of the financial sector reforms, status/funding of infrastructure projects and the financial health of the Indian banking sector in the light of the global/domestic economic slowdown.

The meetings are part of the bi-annual exercise of the IMF under Article IV of its Articles of Agreement (AoA) to collect economic/financial information and discuss with top officials the country's economic developments and policies.

 

Based on their interactions with the Central government officials, as also the monetary authorities, the IMF staff will prepare a report for discussions by the IMF executive board in Spring (around February) and the summary of the conclusions so drawn is transmitted to the country.

In their last assessment in July 2001, the executive directors of the IMF pointed out that the near-term outlook for the economy had become somewhat less favourable. Although the external position appeared comfortable and inflation pressures had waned, growth had slowed in recent years and the global slowdown may have further adverse implications.

Moreover, in addition to external shocks, there were continued signs that the domestic structural constraints and the fiscal situation were adversely affecting the investment and the economy's underlying potential, the IMF cautioned.

Looking ahead, the directors noted that the overall public sector deficit and debt appeared likely to remain high in 2001-02. Although the Centre's budget had contained impressive commitments to reform, the slowdown in economic activity, revenue shortfalls in recent months and expenditure pressures, including those related to bank restructuring and civil service reform posed significant challenges in meeting the target.

The Fund said the states' fiscal situation remained worrisome, especially given the reconstruction in Gujarat and difficulties in the power sector. Power sector reforms were of priority, given the sectors' important macroeconomics and fiscal implications, and would need tariff increases for agricultural consumers and measures to reduce theft and distribution losses.

With regard to monetary policy, the directors cautioned that the large public sector borrowing requirement narrowed the scope for reducing interest rates without undermining the credibility of the authorities' commitment to price stability.

The IMF directors generally agreed that the rupee appeared broadly in line with the present macroeconomic fundamentals but, in the period ahead, the exchange rate might need to adjust to the effects of capital account and trade liberalisation, domestic deregulation, fiscal consolidation, and a more difficult external environment.