Sorting the mess

IMF calls for sound macroeconomic management to overcome India’s economic crisis

Getting the word out on India’s true fis-cal stance could yield significant benefits for policymakers and the Indian economy. A more accurate picture would better inform decisions regarding how much stimulus should be provided in a cyclical downturn. The government of India could increase its credibility vis-a-vis financial markets and enjoy more favourable borrowing conditions as a result. Greater fiscal transparency would also boost the ability of investors and citizens to make informed and efficient financial and economic decisions.

This suggestion of IMF given in a country-focus article released along with the country report is worth attention, especially when India’s growth is at risk and all efforts of the government initiated in recent months have failed. The economy has touched a new low with a growth rate of only 4.5 per cent of the GDP in the last quarter despite government’s claim of making everything possible to reverse the downturn, and the crisis is most likely to deepen further. The government has also failed to get its projects and initiatives to take off. Moreover, there are no funds, and the revenue required for this could not be generated. There seem to be only three options leftwith the government — selling national assets, resorting to large scale borrowing and squeezing the public and the business for more money.

India has huge debt requirement of 8.5 per cent of GDP for the public sector. That is why IMF has suggested that India should recommit to debt reduction by reducing its public sector borrowing requirement. This estimate by IMF incorporates some information on Central government expenditures, which are financed off-budget through other mechanisms, but is missing information on activities of state public enterprises and lower tiers of government.