News: IMF wants India to speed up reforms

(IBN 20/04/2006) Washington DC - In its biannual report, called the World Economic Outlook, the IMF has revised India's 2006 growth rate estimate by a percentage point. But along with the thumbs up also came some warnings from the global body.

India along with China and Russia have emerged as the big winners in the World Economic Outlook, the IMF's global projection report. In the report, the world body has upgraded growth projections for the three countries. India's growth rate for 2006 has being revised from last year's estimate of 6.3 per cent to 7.3 per cent, thanks to strong performance in the manufacturing and service sectors.

Raghuram Rajan, Economic Counselor, Director of Research, IMF says, “There has been broad growth in not only agriculture, in ESP industry but also in services. In addition the affect of oil prices, which we thought would be higher hasn't been as much not just in India but across the world. So I think those two features made us raise the forecast.”

But there were also words of caution. The IMF wants India to speed up the reform process, particularly in the labour, infrastructure and power sectors to sustain growth rates of more than seven per cent. It also warned India to aggressively reduce its current fiscal deficit level of eight per cent.

“The problem comes from two areas. One investment is picking up has picked up substantially and now this competition for resources is going on. And so now if the government is also in the market trying to finance itself, you are going to have higher interest rates and that's a concern. Equally imp is government is talking about full capital account convertibility. If you have such a large fiscal deficit it's an important vulnerability," says Rajan.

The report also warns against the adverse affect of high and volatile oil prices on growing economies like India. It says such an impact is more certain as prices are being driven by supply rather than growing demand.

Apart from Asia, other global economies like Africa have also emerged as winners with a projected growth of 5.8 per cent-it's highest in 30-years. Figures for India are promising too but the IMF cautions against complacency and says labor and education reform are a must to sustain long-term economic growth.