IMF'S EVALUATION OF INDIAN ECONOMY AND POLICY PRESCRIPTIONS

MAJOR OBSERVATIONS OF IMF 

After concluding Article 1v  consultation with India Executive Board  of  IMF observed that despite recent moderation in GDP growth India remained robust with 6 percent yearly growth during the first half of 2024-25.Real GDP is expected to grow at 6.5%  both in  2024-25 and 2025-26 largely due to  macro economic and financial stability coupled with growth in private consumption. Moeover strength of financial sector health is  strenghened  to incorporate balance sheets,strong foundation in public infrastructure etc which strengthened the growth process. Inflation on the otherhand broadly declined within the tolerance band of 2-6 despite food price fluctuations led voltatility. The financial sector also remained resilient with drastic decline in non performing loans showing multi year low Level .While fiscal consolidation has started, the current account deficit is expected to remain sustainable and remain moderate at -1.3% of GDP in 2025-26 buttresed by strong service exports. 

On the contrary certain downside risks are also haunting eeconomic outlook.  Significantly the deepening geo economic fragmentation could adversely affect external demand, which while deepening regional conflicts could result in commodity price voltatility especially in oil price which is likely to impact India's fiscal position. Domestically recovery in private consumption and investment may be weaker than expected in case  real income do not recover sufficiently. Climate change could adversely affect agricultural output, lifting food prices and Impacting rural consumption. On the positive side deeper implementation of structural reforms could boost private investment, employment and potential GDP growth. According to IMF experts 'Prudent macro economic policies and reforms have contributed to make Indian economy resilient and fastest growing major economy. Directors also emphasised that in the face of  headwinds from geo economic fragmentation and slower domestic  demand, continued appropriate policies remain essential to macro economic stability. 

IMF have commented India's commitment to fiscal prudence by adoption of a debt target,well calciberated fiscal consolidation over the medium term to rebuild buffers ease debt service and reduce debt ,with enhanced transparency and accountability Greater  focus on domestic revenue mobilization, expenditure rationalisation  in terms of better targeting of subsidies so as to  create resources for growth. Fiscal disparities across different states prompted IMF directors to agree for a more holistic fiscal framework that includes Central and state Governments, with detailed fiscal deficit path way and sufficient flexibility for more efficient operational guidelines. The Directors appreciated well caliberated monetary policy of RBI with inflation more or less remaining within the target band,but recommended but greater exchange rate flexibility policy.  Welcoming 2024 financial system stability assessment Directors recommended further aligning of country's framework of financial sector regulation, supervision, resolution and safety net  with international standards.They also recommended comprehensive structural reforms, boosting private investment  and FDI,creation of high quality jobs,higher investment, labour market reforms, strengthening human capital and higher women participation etc. They also commented India's role in  global value chains  recent tariff reduction in India and balanced climate management. 

CONCLUSION 

In nutshell after evaluating the working of Indian economy the IMF experts pointed out that consumption and investment slow down and commodity price voltatility need to be tackled. Major policy suggestion was that in the fiscal front instead of concentrating on fiscal deficit gradually it should be replaced by a new globally acclaimed criteria of Debt GDP ratio by 2028. For the efficiency of such a criteria the general debt including that of all federal units comprising of the states, Union territories and central Government needs to be taken into account .Not only states like Punjab, UP,West Bengal, Kerala and Bihar are heavily indebted but in states like Tamil Nadu and Karnataka incremental debt ratio is accelerating. While the fiscal profligacy of both Centre and states needs to be corrected, in Finance Commission awards better performing states especially in South in terms of health, education and population control needs to be amply rewarded. An objective and optimum revamped federal fiscal relations are the need of the hour.As far as exchange rate policy is concerned, since RBI policy of intervention in exchange rate market both during depreciation and appreciation largely stabilised the rupee exchange rate particularly in current times it is better not to adhere to IMF's prescription of greater exchange rate flexibility policy .In the context of female labour participation, eventhough during the post covid period it has increased the quality of employment in the lower strata remained unsatisfactory. It has been observed that in order to achieve Viksit Bharat  goal in time we have to increase health care and education expenditure.Our education expenditure is around 4.6% which should be increased to 5- 6% of GDP and health care to more than 4%  of GDP  existing at par with both Educationally and health wise developed countries.