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Important for India to keep check on fiscal deficit: IMF Chief Economist Gita Gopinath

On the projections in the World Economic Outlook report, Gopinath said appropriate steps have been taken yet there is still a lot more that needs to be done when it comes to India’s financial policies.

SNS | New Delhi |

Chief Economist of the International Monetary Fund (IMF) Gita Gopinath has said it is important for India to keep fiscal deficit in check, even though its revenue projections look optimistic. As against India’s real growth rate of 6.8 per cent in 2018, the IMF in its latest World Economic Outlook, released on Tuesday, projected the country’s growth rate at 6.1 per cent in 2019 and noted that the Indian economy is expected to pick up at 7 per cent in 2020.

In India’s case, there has been a negative impact on growth that has come from financial vulnerabilities and the non-bank financial sector, and the impact on consumer borrowing and borrowing of small and medium enterprises, Gopinath said.

The prominent Indian-American economist was speaking to reporters ahead of the annual meeting of the IMF and the World Bank. On the projections in the World Economic Outlook report, Gopinath said appropriate steps have been taken yet there is still a lot more that needs to be done when it comes to India’s financial policies.

Prominent among these include cleaning up of balance sheets of regular commercial banks, Gopinath said. In our projections we have that India will recover to 7 per cent growth in 2020. And the premise is that these particular bottlenecks will clear up, she said.

On the fiscal side for India, there have been some recent measures, including the corporate tax cut. There has not been an announcement about how that will be offset to revenues at this point, Gopinath said.

It looks optimistic, the revenue projections going forward. But it is important for India to keep the fiscal deficit in check, she said. Responding to a question, Deputy Director in the IMF Research Department Gian Maria Milesi-Ferretti said the overall growth remains very strong in India by the standards of the world economy., even though it’s lower than the very high standards at which the world was accustomed to looking at India, he said. India’s growth rate above 6 per cent is still notable and extremely important in a country that has such a large population. We have a forecast for further pick up the next year, also helped by tax cuts on the corporate trunk, Milesi-Ferretti said.

At the same time, there are many macroeconomic challenges the deputy director said as he emphasized the need to keep fiscal deficit under control.

Of course, India and Pakistan are not immune to global geopolitical tensions and to trade tensions that can take a toll on their manufacturing activity and demand for their exports, said the IMF official when asked about the economic impact of India-Pakistan tensions.

Indian-American economist Abhijit Banerjee, who jointly won the 2019 Nobel Economics Prize with his wife Esther Duflo and Harvard’s Michael Kremer, on Monday pointed out the failing Indian economy and said it is “doing very badly” even as the government is increasingly recognising that there is a problem.

“The economy is doing very badly in my view,” he told a press conference at the Massachusetts Institute of Technology after wining the prize.When asked about his opinion on the state of the economy in India and its future, he said, “That’s a statement not about what will work in the future but about what’s going on now. That I’m entitled to have an opinion about.”

Referring to the numbers put out by the National Sample Survey, that come out every 1.5 years and give estimates about the average consumption in urban and rural areas in India, Banerjee said, “the fact that we see in that is that between 2014-15 and 2017-18, that number has slightly gone down. And that’s the first time such a thing has happened in many many many many many years so that’s a very glaring warning sign.”

Banerjee’s statement on Indian government’s failing financial policies comes after Nobel laureate Amartya Sen, former finance minister Manmohan Singh and former RBI governor Raghuram Rajan advised the Modi administration against some of its drastic decisions like demonetisation and GST.

The IMF said on Tuesday that the economy is slowing to its weakest pace since the global financial crisis, amid continuing trade conflicts that have undercut business confidence and investment. It cut the growth forecast for 2019 to 3.0 percent in its latest World Economic Outlook report, and lowered the 2020 estimate to 3.4 percent. The report warned that the global economy is experiencing “a synchronized slowdown and uncertain recovery.