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(Repeating yesterday's DC 15)

Written by: Staff

Washington, Feb 21 (UNI) The International Monetary Fund (IMF) today said the Indian economy is continuing to reap the rewards of more than 15 years of reforms and has shown remarkable resilience during the past year with growth remaining robust and broad-based despite the high global oil prices and a weak monsoon.

The IMF has just concluded the Article IV in consultation with New Delhi.

In a report released here, the IMF Executive Board of Directors supported the broad objectives of the government's economic program, in particular addressing infrastructure bottlenecks, alleviating rural poverty, and deepening global integration.

It noted that current favourable economic conditions provide a good opportunity for India to speed up structural reforms. In particular, there are good prospects for New Delhi to speed up measures to improve the business climate and reform labour laws.

''With an acceleration of the reform process, India would be able to achieve sustained economic growth of 8-10 per cent, in line with the objectives of the authorities,'' the IMF Directors said. They also emphasised that macroeconomic policies should remain vigilant, in view of the evolving macroeconomic situation.

On inflation, they said even though it has remained contained, underlying pressures point to upside risks. In particular, domestic demand remains strong, as evidenced by a widening current account deficit and rapid credit growth. In this context, the Directors recommended that fiscal policy should counter demand pressures, and they underlined the importance of overperforming on the Budget and meeting the minimum adjustment required under the Fiscal Responsibility and Budget Management Act.

They also underscored the need for the Indian economy to adapt to permanently higher international oil prices. They recommended moving gradually to the full pass-through of oil prices-with targetted support for the poor, which would help limit fiscal and quasi-fiscal losses and provide incentives for more efficient energy use, thus aiding competitiveness in the medium term.

The Directors noted that, notwithstanding the deficit reduction achieved since 2001/02, India's large public debt remains a key constraint on growth. Without further enhancing tax revenues and reducing lower-priority spending, it will be difficult to create fiscal space for the planned large and crucial increases in infrastructure and social spending.

In addition, with credit to the private sector rising fast, the risk that government borrowing needs will crowd-out the private sector has increased. Directors observed that fiscal consolidation is a prerequisite for more complete financial sector development and further opening up of the capital account.


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