The International Monetary Fund (IMF) on Tuesday stuck to projections of India’s GDP growth for both FY24 and FY25 at 6.3%, but added that the country has the potential for even higher growth with greater contribution from labour and human capital by undertaking comprehensive reforms.
Following an Article IV review of the country’s policies by its Executive Board, the IMF said India’s headline inflation is expected to gradually decline to the target although it remains volatile due to food price shocks.
The IMF report said India’s current account deficit is expected to improve to 1.8% of GDP in FY24 as a result of resilient services exports and, to a lesser extent, lower oil import costs.
“Going forward, the country’s foundational digital public infrastructure and a strong government infrastructure programme will continue to sustain growth,” it said.
The IMF report said risks to India’s outlook are balanced. “A sharp global growth slowdown in the near term would affect India through trade and financial channels. Further global supply disruptions could cause recurrent commodity price volatility, increasing fiscal pressures for India,” it said.
Domestically, weather shocks could reignite inflationary pressures and prompt further food export restrictions, it noted.
On the upside, stronger than expected consumer demand and private investment would raise growth, it added.
“Further liberalization of foreign investment could increase India’s role in global value chains, boosting exports. Implementation of labor market reforms could raise employment and growth,” it said.
IMF Directors welcomed the Indian authorities’ near-term fiscal policy, which focuses on accelerating capital spending while tightening the fiscal stance.
While acknowledging that India’s debt composition helps mitigate debt sustainability risks, Directors recommended ambitious medium-term consolidation efforts given elevated public debt levels and contingent liability risks.
In that context, improving revenue mobilization and spending efficiency would allow for continued improvements in digital and physical infrastructure and targeted social support, the IMF report said.
Directors also encouraged the authorities to put in place a sound medium-term fiscal framework to promote transparency and accountability and align policies with India’s development goals.