International Monetary Fund (IMF) chief economist Gita Gopinath has expressed concern over the current slowdown of Indian economy and has advocated for the structural reform which Gov of India should undertake to address the falling demand of Indian market.
She has recommended a number of policy priorities for the government, saying that this is the right time for a structural reform push in the economy. The economist is travelling to India this time and has spoken on various issues of the Indian economy. She recommended that government policy should focus on managing a slowdown in domestic demand, and on boosting productivity growth and supporting employment creation in the medium term.
“Given the cyclical position and the structural challenges of the Indian economy at this point, we recommend that policies focus on managing the slowdown in domestic demand, and on boosting productivity growth and supporting employment creation in the medium term,” she told in an interview.
The Indian-American economist suggested government include a credible fiscal consolidation path in policy priorities which would prove more profitable than currently envisaged by the government. “This is needed to reduce the high level of debt and reduce crowding out which would free up financial resources for private investment,” said Gopinath.
Three policy priorities for government
In support of Modi’s ambitious economic plan to reach out USD 5-trillion economy with proper investment, she recommended three policy priorities for the Government of India.
She advised to accelerate the clean-up of the banks, and corporate balance sheets and to enhance governance of public sector banks to revive bank credit and enhance the efficiency of credit provision while monitoring closely emerging risks from the liquidity stress in non-banking financial companies (NBFCs) and enhancing supervision and regulation of the NBFCs.
The continued fiscal consolidation over the medium term to minimize public debt levels at centre and state, supported by further steps to increase tax compliance and administration was the second mantra for Indian economy. She also stressed on improving fiscal transparency.
The third priority for the Indian economy, as advised by Gita Gopinath, is the reform in labour, land, and product market which could enhance competition and governance in market and priority should be given to creating more and better jobs for India’s young and rapidly growing labour force with infrastructure investment.
“Improvements in health and education are essential for broad-based inclusive growth,” said the noted economist.
Answering a question, Gopinath said that the current slowdown of the Indian economy has surprised many, including the International Monetary Fund.
“Rural income growth has been weak. Good monsoon rainfall, agriculture sector reform, and food management improvements have pushed down food prices. The low food prices represent a positive development in that they have supported the efforts of the Reserve Bank of India to keep inflation under control,” said the IMF’s chief economist.