5.7 percent growth rate for India in 2003: IMF
WASHINGTON: An IMF report said a cyclical recovery is under way in the country despite several sources of risk, including the regional security situation.
Other sources of risk listed in the "World Economic Outlook 2002", released by IMF Tuesday before the IMF-World Bank annual meetings, are agriculture, which has been negatively affected by a poor monsoon, and higher oil prices.
The report will form the basis of the discussion at the annual meetings that begin next weekend in the capital. Indian Finance Minister Jaswant Singh will lead the Indian delegation for the first time at these meetings. He is also expected to meet U.S. Secretary of State Colin Powell during his stay.
The document, prepared by IMF staff, noted the moderate inflation and comfortable external position in India but said "trend-growth has declined since the mid-1990s as the benefits of earlier structural reform have faded".
"With the fiscal deficit among the highest in the world," IMF pointed out, "fiscal consolidation has become urgent".
It said that pending fiscal responsibility legislation offers an opportunity to India to set out a clear and explicit medium-term fiscal consolidation path.
Recent efforts to strengthen state finance are welcome, but the fiscal 2002-03 budget envisages only modest deficit reduction and even this may be difficult to achieve, given the relatively optimistic revenue projections, said the report.
On the structural side, it noted "significant progress" in privatisation, more market-based pricing of petroleum products and interest rate liberalisation.
The report, however, said a large unfinished agenda remains, including further opening up to trade and foreign investment, removing restrictions on agricultural and industrial activity and strengthening the financial system.
Notwithstanding the reforms of the 1990s, IMF said India remains in the group of countries with the most restrictive trade regimes. India's average tariff is one of the highest in the world.
Reflecting these restraints, India is lagging behind the rest of Asia in terms of opening up to international trade. Between 1980 and 2000, India's trade openness increased by about 50 percent while that of China surged by 150 percent. A similar pattern emerges in terms of shares of world trade, it said.
While India's share of world merchandise exports increased from 0.5 percent to less than 0.7 percent over the last 20 years, China's share more than tripled to almost four percent, according to the report.
Foreign direct investment inflows to India also remain very low in comparison to some other emerging countries. It should be noted, however, that thanks to India's competitive edge in the information technology sector, India's trade performance looks more favourable when trade in services is included, said IMF.
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