Quick Telecast
Expect News First

India should gradually withdraw fiscal, monetary stimulus, says IMF

0 34





To maintain the external sector balance at a comfortable level over the medium term, the International Monetary Fund (IMF) has recommended that India should gradually withdraw its fiscal and monetary policy stimulus, develop export infrastructure, and negotiate free trade agreements with key trading partners to provide a sustainable boost to exports.


In its latest External Sector Report, released on Thursday, IMF said India should further liberalise its investment regime accompanying it with reduction in tariffs, especially on intermediate goods. “Structural reforms could deepen integration in global value chains and attract FDI, hence mitigating external vulnerabilities. Exchange rate flexibility should act as the main shock absorber, with intervention limited to addressing disorderly market conditions,” IMF said.


The IMF said India’s external position in FY22 was broadly in line with the level implied by medium-term fundamentals and desirable policies. “Running current account deficits is broadly consistent with India’s level of per capita income, favorable growth prospects, demographic trends, and development needs. External vulnerabilities stem from volatile global financial conditions and significant increases in commodity prices,” it added.


The multilateral lending agency projected India’s current account deficit (CAD) to widen to 3.1% of GDP in FY23 from 1.2% of GDP in FY22. “In part reflecting the impact of the war in Ukraine on oil prices, the CAD is projected to widen in fiscal year 2022-23 but then stabilise over the medium term. The authorities have made some progress in external trade promotion and the liberalisation of FDI and portfolio flows, but the existing tariff structure remains broadly unchanged,” it said.


The IMF said as of the end of 2021, India’s net international investment position (NIIP) which is the difference of the country’s external financial assets and liabilities, had improved to –11.1% of GDP from –13.5% of GDP at the end of 2020. “This reflected a relatively low CAD (amid the COVID-19 pandemic) and the accumulation of reserve assets. Gross foreign assets and liabilities were 30.5% of GDP and 41.7% of GDP, respectively. The bulk of assets were in the form of official reserves and (outward) FDI, whereas liabilities included mostly FDI and other investments,” it added.


India’s external debt liabilities are moderate compared with peers, and short-term rollover risks are limited, IMF said. “The moderate level of foreign liabilities reflects India’s incremental approach to capital account liberalisation, which has focused primarily on attracting FDI. While FDI inflows covered the CAD in FY2021-22, structural reforms and improvement of the investment regime to promote FDI are needed. Volatile portfolio investments are very sensitive to changes in global financial conditions and country risk premia. Expected inclusion of India in international bond indices should increase portfolio investment inflows for financing the CA deficit over the medium term,” it added.


The IMF said an unusual period of current account surpluses in 2020 and early 2021 allowed the Reserve Bank of India to replenish official forex reserves, which reached a record high of about $638.5 billion at the end of 2021. The reserves decreased in subsequent months but remained at a comfortable level of about eight months of import coverage.


“Various criteria confirm that official FX reserves are adequate for precautionary purposes. As of the end of 2021, they represented about 223% of short-term debt (on residual maturity) and 195% of the IMF’s composite metric. Consequently, accumulation of additional reserves is less warranted, and FX interventions should be limited to addressing disorderly market conditions,” it added.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor







To maintain the external sector balance at a comfortable level over the medium term, the International Monetary Fund (IMF) has recommended that India should gradually withdraw its fiscal and monetary policy stimulus, develop export infrastructure, and negotiate free trade agreements with key trading partners to provide a sustainable boost to exports.


In its latest External Sector Report, released on Thursday, IMF said India should further liberalise its investment regime accompanying it with reduction in tariffs, especially on intermediate goods. “Structural reforms could deepen integration in global value chains and attract FDI, hence mitigating external vulnerabilities. Exchange rate flexibility should act as the main shock absorber, with intervention limited to addressing disorderly market conditions,” IMF said.


The IMF said India’s external position in FY22 was broadly in line with the level implied by medium-term fundamentals and desirable policies. “Running current account deficits is broadly consistent with India’s level of per capita income, favorable growth prospects, demographic trends, and development needs. External vulnerabilities stem from volatile global financial conditions and significant increases in commodity prices,” it added.


The multilateral lending agency projected India’s current account deficit (CAD) to widen to 3.1% of GDP in FY23 from 1.2% of GDP in FY22. “In part reflecting the impact of the war in Ukraine on oil prices, the CAD is projected to widen in fiscal year 2022-23 but then stabilise over the medium term. The authorities have made some progress in external trade promotion and the liberalisation of FDI and portfolio flows, but the existing tariff structure remains broadly unchanged,” it said.


The IMF said as of the end of 2021, India’s net international investment position (NIIP) which is the difference of the country’s external financial assets and liabilities, had improved to –11.1% of GDP from –13.5% of GDP at the end of 2020. “This reflected a relatively low CAD (amid the COVID-19 pandemic) and the accumulation of reserve assets. Gross foreign assets and liabilities were 30.5% of GDP and 41.7% of GDP, respectively. The bulk of assets were in the form of official reserves and (outward) FDI, whereas liabilities included mostly FDI and other investments,” it added.


India’s external debt liabilities are moderate compared with peers, and short-term rollover risks are limited, IMF said. “The moderate level of foreign liabilities reflects India’s incremental approach to capital account liberalisation, which has focused primarily on attracting FDI. While FDI inflows covered the CAD in FY2021-22, structural reforms and improvement of the investment regime to promote FDI are needed. Volatile portfolio investments are very sensitive to changes in global financial conditions and country risk premia. Expected inclusion of India in international bond indices should increase portfolio investment inflows for financing the CA deficit over the medium term,” it added.


The IMF said an unusual period of current account surpluses in 2020 and early 2021 allowed the Reserve Bank of India to replenish official forex reserves, which reached a record high of about $638.5 billion at the end of 2021. The reserves decreased in subsequent months but remained at a comfortable level of about eight months of import coverage.


“Various criteria confirm that official FX reserves are adequate for precautionary purposes. As of the end of 2021, they represented about 223% of short-term debt (on residual maturity) and 195% of the IMF’s composite metric. Consequently, accumulation of additional reserves is less warranted, and FX interventions should be limited to addressing disorderly market conditions,” it added.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

FOLLOW US ON GOOGLE NEWS

Read original article here

Denial of responsibility! Quick Telecast is an automatic aggregator of the all world’s media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials, please contact us by email – [email protected]. The content will be deleted within 24 hours.

Leave a comment
buy kamagra buy kamagra online
Ads Blocker Image Powered by Code Help Pro

Ads Blocker Detected!!!

We have detected that you are using extensions to block ads. Please support us by disabling these ads blocker.

Powered By
Best Wordpress Adblock Detecting Plugin | CHP Adblock