IMF Calls For A Liberalized Foreign Investment Policy And Debt Reduction For India To Ensure Faster Growth

The International Monetary Fund (IMF) has urged India to further liberalize foreign investment policy in order to ensure faster growth amid geopolitical tensions.

“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.

“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, irregular weather conditions could propel inflationary pressures and hinder food exports. Moreover, the IMF raised concerns over elevated public debt levels and contingent liability risks. The IMF directors recommended that risks could be mitigated with medium-term consolidation efforts. India”s debt consolidation would ease debt sustainability risks.

Moreover, India should enhance revenue mobilization and spending efficiency for continuous digital and physical infrastructure improvements and targeted social support. Directors also urged the authorities to implement a healthy medium-term fiscal framework to encourage transparency and accountability with India”s development targets.

On the other hand, India”s current account deficit is expected to improve to 1.8% of GDP in FY2024 on the back of strong service exports and lower oil import costs. Other factors that ensure India”s growth are digital public infrastructure and strong government spending on infrastructure.

“Going forward, the country’s foundational digital public infrastructure and a strong government infrastructure programme will continue to sustain growth,” it said.

IMF directors hailed India”s near-term fiscal policy, which guarantees accelerated capital spending with a tightening fiscal stance. According to an Article IV review of the country’s policies by the IMF Executive Board, India’s headline inflation is expected to lower to the target despite volatility.

The Reserve Bank of India aims to restrict retail inflation to around 4%.The IMF is expecting India to grow at 6.3% in the 2023–24 fiscal year, which is below the RBI’s estimate of 7%.