The IMF on Friday said India should continue to focus on fiscal consolidation despite the recent slowdown in the economy.
“In countries where large fiscal imbalances entail risks to macroeconomic stability, consolidation should continue, relying on high-quality measures to reduce the short-term drag on economic activity,” said Changyong Rhee, Director, Asia and Pacific Department, IMF, while launching the Regional Economic Outlook.
However, Finance Minister Arun Jaitley had on Thursday said that fiscal consolidation remained a top priority for the government. The Centre aims to control its fiscal deficit at 3.2 per cent of GDP in 2017-18.
Though the IMF has revised down India’s GDP growth forecast to 6.7 per cent for 2017, Rhee said signs of a recovery are already showing.
Apart from fiscal consolidation, India must also pursue reforms in the banking sector and labour markets, said Kenneth Kang, Deputy Director, Asia and Pacific, IMF.
The IMF has also said that India should work on reforms to tackle supply bottlenecks, enhance the efficiency of labour and product markets and modernise the agricultural sector.
“Rationalising labour market reforms should be a priority to facilitate greater and higher quality job creation,” it said.
Reducing the number of labour laws that total about 200 would promote investments and employment, said Kang, adding that female labour participation must also be encouraged.
Further, efforts must be made to strengthen public sector banks and continue structural reforms to address bad loans.
Key Asian role Noting the upswing in the global economy, the IMF said that Asia continued to play a key role. “Asia’s contribution to the global economy is 63 per cent, China and India accounts for more than 50 per cent of global growth with India contributing 17 per cent,” the report said.