India needs to expedite structural reform process: IMF

​Washington: India should expedite the structural reform process by working to build consensus, according to senior IMF officials who said the country needs land and labour market reforms to achieve sustained growth. Changyong Rhee, Director of the Asia and Pacific Department at the International Monetary Fund, said that India has some of the world class economists and there is no dearth of good policies, the issue is with their implementation. "I don't know whether my Indian colleagues will like it or not. Just do it. 

Stop talking," Rhee told PTI in an interview when asked what India needs to do to achieve high sustained growth. Rhee quickly explained stating that "just do it" might be too simple a line. "India is, of course, a democratic society, so consensus needs to be first built. It is in that context, though, that India needs to expedite the reform process first, by working to build consensus and agreement and then followed by implementation," he explained. 

"I think, the real issue is whether India is ready to implement; even though gradually, even though one by one. That is why I liked the Modi Government because it is starting to implement it." Rhee said that "reaching consensus" is much harder in India than in China, but it should not be an excuse for "not doing the reforms". Overall, the IMF sees positive sign of the structural reforms and believes that it will be an important for India top continue with them. "If you look at the other reforms that India has to do, there is a more daunting task," he said. 

In its latest Asia Pacific Regional Economic Outlook on October 9, the IMF has projected the Indian economy to grow at 7.3 per cent in FY2018/19 and 7.4 per cent in FY2019/20. It was revised down by 0.1 and 0.4 percentage points, respectively from its previous projections, due to higher oil prices and further monetary policy tightening. Near-term growth will be underpinned by strengthening investment and robust private consumption. The current account deficit has been revised up to three per cent of the GDP in FY2018/19 because of rising oil prices and strong demand for imports, the report said. 

Ranil Salgado, another IMF official said, that the Modi government has done a number of structural reforms. "We have the inflation targeting framework. We have the insolvency and bankruptcy code and also importantly the national Goods and Services Tax. Those are some of the key reforms and then they've done a bunch of smaller reforms including improving the business climate, liberalising FDI investment regime," Salgado, the IMF's mission chief for India, said. "Then finally they had been focused on macroeconomic stability. 

Overall, we rethink that this has improved the underlying fundamentals of the economy," Salgado said. He said that India had also been able to build some of the buffers like foreign reserves have gone up substantially for most of the time, except in the last six months or so. But some of the key structural challenge remain, he said, adding that "product market type reforms" are needed as well as for land and labour market reforms. "That's what we think will be important going forward to raise investment, job growth and productivity," Salgado said. Responding to a question on recent depreciation of the Indian rupee, Salgado said India has faced some of the volatility seen in other emerging markets. 

"For India, we think it's primarily reflecting the widening of the current account, which primarily reflects higher oil prices and also the relative strengthening of the Indian economy," he said. At the same time, the emerging market volatility, has led to slow down for some months of capital inflows and in some months actually a reversal, the top IMF official said. "So overall India has run a balance of payments deficit and that the RBI has allowed the exchange rate to be flexible and that's in line with our own recommendations to act as a shock absorber," he said. In the last couple of weeks, India has taken a few other steps, some of which the IMF thinks are quite positive, such as further liberalising capital inflows. 

India, he said, is committed to trade liberalisation as well as quite committed to the global trade system. Rhee said China maintained well over seven, sometimes 10 per cent, growth rate for more than a decade. So the issue is can India actually maintain this seven plus growth rate for more than a decade. So the real question is that whether India can actually maintain this high growth rate, he said. "As we mentioned that India, finally the elephant is started to run, our view is quite optimistic because when we want to really commend the structurally formed part, the macro economic performance, growth is result of this structure reform," he said. 

Don't be judged by the short-term fluctuation with the market, Rhee said. "If you focus on whether India can achieve a higher growth rate for next 10 years, it depends on the success of structural reform and whether the structure reforming can continue,” he said And compliment to the Modi government because previously (in) India, there are lots of discussions over structural reform, but there's not much movement in some sense, he said. 

- Lalit K Jha