According to reports, The International Monetary Fund (IMF) said India needs to strengthen its labour, land and education sector, with a focus on improving participation of women in the labour force, if it wants to improve its growth potential. The three areas are potential bottlenecks that could hamper India’s growth, IMF said.
Furthermore, putting focus on infrastructure investment and keeping a commodity fiscal stance could be an appropriate action to support the vulnerable households, it added. For FY 2023, IMF cut growth outlook for India last week by 80 basis points to 8.2 per cent amid spillovers from the Russia Ukraine war.
“In India, the difficult policy tradeoffs are evident from the fallout from the Ukraine war, especially, higher oil prices expected to weigh on gross and increase current account deficits and push up inflation. While growth is still expected to be strong at 8.2 percent, this is 0.8 percentage points lower than in the January Update,” Anne-Marie Gulde-Wolf, Acting Director of the IMF’s Asia and Pacific Department said.
“To enhance India’s growth potential, it is important to address structural weaknesses of the Indian economy that provide bottlenecks to achieve longer-lasting growth. These bottlenecks are in the labor market, land market, better educational outcomes, and very much also getting a higher share of females into the labor force,” Gulde-Wolf added.
As food and fuel prices rise, the IMF said the government needs to support the economy by fiscal support through in-kind and cash transfers pinching the pockets of households while RBI, the central bank, must make a well-communicated monetary policy action, and probably “some monetary tightening”, the report said.
High inflation, Fed policy tightening to hurt growth in Asia
“Inflation in Asia, which was relatively low during the pandemic, has started rising following the spike in food and fuel prices. The shock from the war comes at a time when recovery from the pandemic is still incomplete and global financial conditions are tightening. New COVID waves are adding to headwinds in some countries, most notably, China. Lower growth in China is affecting many Asian trading partners that are tightly integrated,” IMF said Tuesday.
“Monetary tightening in advanced economies is leading to higher interest rates in Asia as well, placing a further drag on growth. These headwinds will exacerbate the medium-term scarring effects from the pandemic that many emerging and developing economies in the region are expected to suffer; amplified by their higher debt burdens,” it added. (Source: Financial Express)
