IMF expects India's GDP to touch 9 pc mark

Washington, Jan 25 (UNI) The International Monetary Fund (IMF) expects India's GDP growth to be about 9 per cent in 2006-07, a record in itself, before moderating to about eight-and-a-half per cent in 2007-08.

''India's economic performance has exceeded all expectations,'' said IMF Asia and Pacific Department Deputy Director Wanda Tseng in a conference call with journalists here today on completion of India's economic review for 2006.

''Growth is rapid and broad-based, driven by private consumption and investment spending...India continues to increase its integration with the global economy.'' She said, ''Credit and asset markets are booming, thanks, in part, to financial deepening. The economy and the financial system have been resilient, despite volatility in international oil prices and financial markets, and slowing US growth.'' Overall, IMF expressed optimism about India's prospects. Tseng said, ''The strong performance thus far is a testament to sound macroeconomic management and steady reforms. Continuing with these, good policies can support stable growth, reduce poverty, and durably improve living standards for all of India.'' IMF has held discussions with India on economic policies that are needed to sustain and raise economic growth, further reduce poverty, and improve living standards.

The main focus of these discussions was on guarding against the risk of overheating; reducing the budget deficit and public debt, while allowing room for social and infrastructure spending; developing financial markets and pursuing further structural reforms.

According to IMF, near term priority for the Indian economy should be to avoid overheating. ''Above-trend growth has begun to push up inflation and a sustained boom in credit markets could pressure asset quality,'' it said noting that the Reserve Bank of India (RBI) is already addressing these risks.

While government finances are in the best position in over a decade, IMF pointed out, the budget deficit and debt are still high and need to be reduced. ''At the same time, room needs to be made for social and infrastructure spending.'' ''We see scope to achieve both aims by broadening the tax-base by eliminating corporate income tax incentives, cutting exemptions and continuing to work towards a national goods and services tax,'' Tseng said.

IMF said developing the financial markets will support long-run growth by promoting more efficient intermediation and risk management. It will also facilitate both infrastructure finance and movement towards greater capital account openness.

To develop markets, money and government securities markets can be made more liquid while embryonic corporate bond and derivatives markets can grow to play a larger role, the fund said.

Broadening the investor-base in the context of pension reforms would help to expand the channels for long-term funding, IMF said adding that continued structural reforms are needed to boost long-run growth potential and spur job creation.

UNI