Lagarde lauds India's fiscal policy

Says big-ticket infra investments could stimulate economy

Amid persistent global economic uncertainty, International Monetary Fund (IMF) Managing Director Christine Lagarde on Sunday backed the government's fiscal policy and lauded its efforts and those of the Reserve Bank of India (RBI) to clean bank balance sheets.

Terming India's fiscal stance of consolidation and higher capital spending "appropriate and sensible", Lagarde said investments in major infrastructure projects are the right way to stimulate economy.

"We consider the fiscal stance adopted by India is appropriate and a very sensible objective has been set. It is just the right one that has been set under the given circumstances," Lagarde said at the end of the three-day Advancing Asia conference the hosted by India and the IMF.

Finance Minister Arun Jaitley stayed on course the fiscal consolidation path for 2016-17, with a fiscal deficit target of 3.5 per cent of the gross domestic product (GDP), despite challenges on revenue expenditure side. The government has also pledged higher government spending on infrastructure and agriculture sectors in the next financial year.

With this, the government is "trying to eliminate as many bottlenecks as possible and reap the benefits of agriculture and manufacturing. So their fiscal stance is right," said Lagarde.

India being a net importer of oil and gas, it is using windfall from low energy cost to finance infrastructure projects, which is a right stance from the IMF's perspective, she added.

Lagarde also lauded the collective effort of RBI and the finance ministry to clean up bank balance sheets.

Also, that move to address the problem from a legal perspective through a bankruptcy law would help reorganise those corporate accounts that are loaded with debt that weigh on bank balance sheets.

"I think equally relevant are various mechanisms and instruments that are being worked out to deal with bad loans and distressed assets in banks' balance sheets," she said. Adding, "The banking system of India seems to be well capitalised and this effort to reinforce and strengthen is well taken."

Jayant Sinha, minister of state for finance, said the resolution process should be strengthened through corporate debt restructuring and strategic debt restructuring in the near-term and bankruptcy/insolvency code in the long-term.

Stating that it was important to prevent such situation from occurring again, he said a comprehensive, multi-dimensional approach to strengthening the banking system was being adopted.

"In pursuit of that, RBI and the finance ministry have got together to address the structural issue," he added.

On further quota reforms at the IMF to reflect global economic realities, Lagarde said a round of quota reforms were just done, and breathing space was required before the next round was taken up.

Prime Minister Narendra Modi had said on Saturday that while the long pending quota revisions agreed in 2010 would finally come into effect, "even now, IMF quotas do not reflect the global economic realities".