India needs structural reforms to achieve higher growth levels: IMF

In response to another question on the impact of a sharp increase in bond yields on emerging markets, Srinivasan said that both the public and private sectors should be careful while borrowing

The macroeconomic environment in India is pretty sound and it needs to do further structural reforms to exploit its ‘significant’ potential to achieve higher growth levels, a top International Monetary Fund (IMF) official said on Friday.

“Overall, the macroeconomic environment is pretty sound in India and in terms of really exploiting the significant potential that India has, I think the need is for structural reforms,” Krishna Srinivasan, director, Asia and Pacific Department (APD) at IMF said at a press briefing on the Asia-Pacific region. 

Responding to a question regarding the policy interventions that are needed by India to achieve higher growth, the IMF director said further reforms are needed to improve the business environment and investor confidence. 

“India has been fiscally disciplined and the central bank has also acted fast to bring down the inflation, which makes macroeconomic fundamentals strong. The structural reforms will be the key to achieve further growth,” Srinivasan added.

On the impact of sharp increase in bond yields in emerging markets, Srinivasan said both public and private sector should be careful while borrowing.

“When interest rates are rising, I think it’s important to keep in mind that sectors, which are highly leveraged, are likely to hurt more. That's true not just for India but for other countries in the region as well. So, it's important to borrow carefully,” he added.

Earlier this week, the IMF, in its latest World Economic Outlook, had raised the FY24 growth projection for India by 20 basis points (bps) to 6.3 per cent.

It cited stronger-than-expected consumption between April and June and also revised upwards the inflation projection to 5.5 per cent for FY24.

“Growth in India is projected to remain strong, at 6.3 per cent in both 2023 (FY24) and 2024 (FY25), with an upward revision of 0.2 percentage (points) for 2023 (FY24), reflecting stronger-than-expected consumption during April-June,” said the IMF.

In its July outlook, the IMF had projected a growth rate of 6.1 per cent for India in FY24, a 0.2 percentage point upward revision against the April projection, driven by strong domestic investment.

The IMF’s latest outlook also kept its global growth forecast unchanged at 3 per cent for 2023 and pared the 2024 projection by 10 bps to 2.9 per cent.