Election year: IMF official applauds India for fiscal discipline

Virendra Pandit

New Delhi: An International Monetary Fund (IMF) official has praised India for maintaining fiscal discipline in an election year, saying the Indian economy is doing well and continues to be the world’s bright spot.

“At this point, India’s economy is doing well. Growth at 6.8 percent is very good. Inflation’s coming down. We have to make sure that inflation comes down to the target and it is there on a durable basis. Macro fundamentals look pretty good,” Krishna Srinivasan, Director of the Asia and Pacific Department at the IMF, told a news outlet.

“One thing I would say is that maintaining fiscal discipline, especially in the election year, has been quite a highlight because countries do embark on fiscal adventures in the election year.

“This government has maintained a discipline which, I think, is very important because, at the end of the day, sound macro fundamentals are the basis on which countries prosper and have durable growth. So that’s very important to maintain that.”

India has successfully navigated multiple shocks over the last several years. It’s emerging to be one of the fastest major economies in the world. “In fact, for this year, 2024-25, we project growth at 6.8 percent led by private consumption and public investment. Inflation is coming down gradually. It’s now below 5 percent,” he said.

“If you look at the macro fundamentals, they’re pretty solid. You look at the reserve position, it’s strong. If you look at overall macro fundamentals, it’s pretty good,” he said, adding that risks to the economy are broadly balanced.

According to the Reserve Bank of India (RBI), India’s forex reserves jumped by USD 2.98 billion to a fresh peak of USD 648.562 billion for the week ended April 5. In the previous reporting week, this kitty had increased by USD 2.951 billion to USD 645.583 billion, which was an all-time high.

“In the short-term, an important risk is volatile commodity prices with various tensions… But going beyond the short-term, you could think in terms of weather-related shocks, and fragmentation. All these are things to worry about in terms of risks to the outlook.

“Of course, there are also risks to the upside when I say private consumption could be stronger. The impact of capital expenditure in India could be stronger with more crowding in private investment. So those are upside risks. In a nutshell, India has a sweet spot at this point,” the IMF official said.

Srinivasan said India is among the main drivers of global growth. “This year we expect economic growth at 6.8 percent. That is led by private consumption and a lot of public investment… India will contribute almost 17 percent of global growth. So that’s one reason why we think it’s a bright spot,” he said.

“The second driver is Digital Public Infrastructure (DPI). I think this is an important moment, almost like a watershed moment. It’s very fundamental because the DPI enhances productivity by fostering competition and innovation. It also furthers financial inclusion and makes the public sector that much more efficient. So this is a big thing,” he said.

“The third reason is that India has a young and growing population. It is likely to add 15 million people to the labor force every year. There could be other factors that lead us to believe it’s a bright spot. But again, when I talk about the young population and to benefit from the demographic dividend, I think a lot of reforms will be needed, which over the medium-term will require a lot of reforms,” he said.

For the demographic dividend to be reaped, India has to invest a lot in education and health. “I cannot emphasize this more because it’s not just about the population and how to employ them proactively. You’re going to have transformations like AI coming into play.

“In India’s labor force, the young have to be well-skilled to deal with these transformation changes to contribute effectively to the economy. In that sense, investment in education, and health is very important. That’s one thing in terms of reforms,” he said.

“I would also say that making the labor market smoother and functioning well by implementing these labor reforms which have been passed recently is very important. Reducing the number of trade restrictions is important because this gives opportunities for people to expand their horizons beyond the domestic economy. Making the country more attractive to business investment is very important.

“Even now when you talk to investors, they talk about the red tape, the bureaucracy, how long it takes to get things done in India. I think those are things which need to be addressed effectively for India to gain from this young population and have long-term growth,” Srinivasan said.