 "Inflation, fiscal deficit concerns for next govt: IMF")
He also said the new regime had to get economic growth going, to adequately absorb youths in jobs, even as there is a lack of social consensus between environmentalists and others on this issue.
Addressing a seminar on immediate priorities for the next Union finance minister to achieve economic security for the country, organised by business chamber Assocham, the Fund's senior resident representative, Thomas J Richardson, said: “We are bullish on India. India’s story is very strong.” However, he said, the current level of inflation was a concern. “It has moved away some of financial savings.”
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Both the wholesale and retail price inflation numbers rose in March at a higher pace, the latter by a two-month high of 8.31 per cent and the former by the fastest in three months, by 5.7 per cent. IMF's recent report on India had suggested monetary tightening to the Reserve Bank.
Richardson said the fiscal deficit level was still on the higher side. It is projected to come down to 4.6 per cent of gross domestic product (GDP) for 2013-14 in the government budget's revised estimate, against 4.8 per cent in the original budget estimate. However, the target had already been breached by 14 per cent in the first 11 months of 2013-14. It is expected that higher tax collections in March, concluding month of that financial year, due to advance collections and a rush to file dues would lead to some surplus in the month.
The finance ministry's road map for fiscal consolidation is for a deficit no more than three per cent of GDP by 2016-17. "We are encouraged that there are medium-term plans (to bring it to this level)," Richardson said. He suggested cutting of subsidies; fuel subsidies were regressive, he advised.
Adding, that revenue also needs to be raised. "This does not mean rates have to be increased; rather, the base needs to be raised."
On a specific issue of a tax row between Vodafone and the government, Richardson said a stable tax regime was always good for investors.
He said introduction of a national goods and services tax would improve growth prospects, as it would remove trade barriers between states.
As India takes these measures, Richardson said, the country would be an important destination for global investors. Economic growth at 4.5 per cent in 2012-13 was still much higher than in European countries, he noted.
The concern of the next government had to be the sustaining of economic expansion, he said, though there was less social consensus on economic growth in India compared to China, where he'd worked a decade earlier. “I see various people legitimately worried about environment issues. On the other hand, the number of young people coming to urban areas in the next 10-15 years would be very high. You need growth to absorb them into the workforce.”
He was not saying one should compromise on environment hazards, he clarified, but there needed to be clear discussion in society about how to get growth going. The IMF expects India to gorw 5.4 per cent this financial year from 4.6 per cent in 2013-14. India's official projection for FY14 is 4.9 per cent. The Fund expects 6.4 per cent in 2015-16.
Rana Kapoor, president of Assocham, said the economy was not in a healthy state and the new government would have to take “bold decisions” within 35 days to boost growth.