IMF's Recommendations on India's Economic Policies

The International Monetary Fund (IMF) has emphasized the importance of structural reforms in India, underscoring that continued appropriate policies are crucial for maintaining macroeconomic stability.

Growth Forecast and Risks

• The IMF projects India's growth at 6.5% for FY25 and FY26.
• Key risks to growth include geoeconomic fragmentation and slower domestic demand.

Article IV Consultation Report

The IMF's Article IV consultation report commends India's prudent macroeconomic policies which have bolstered growth, providing a chance to move forward with structural reforms. These consultations cover a wide range of policy matters including fiscal and monetary issues, healthcare, and pensions.

Current Economic Context

• India's GDP growth slowed to a seven-quarter low of 5.4% in July-September.
• Broader conflicts and reduced international cooperation could affect external demand and foreign direct investment (FDI).

Recommendations for Trade and Exchange Rate

• Foster trade integration with partner countries to counter global fragmentation.
• Greater exchange rate flexibility is recommended for absorbing external shocks.

Sector-Specific Observations

• Production-linked incentive (PLI) schemes have attracted investment but are insufficient for job creation.
• Recent tariff reductions could enhance competitiveness and integrate India into global value chains.

Near-Term Priorities

• Labour market reform and reduction of trade restrictions.
• Continuation of public investment and a strong policy framework for stability.

Long-Term Reforms

• Align financial sector regulation with international standards.
• Pursue reforms in agriculture, land, and the judiciary.
• Strengthen education, skilling, public health, and social safety nets.
• Reduce public sector footprint in credit markets to enhance job creation.

Fiscal Policies

• Continued fiscal consolidation to strengthen buffers, ease debt service, and reduce debt.
• Focus on domestic revenue mobilization for sustainable economic growth.