The Indian government has received appreciation from the International Monetary Fund (IMF), which also noted that the economy has the ability to “grow faster and more sustainably if a comprehensive structural reform agenda is implemented” and that its high performance will probably continue in the future.
The IMF’s staff stated in their Article IV consultations, which are mandated by the multilateral agency’s Article IV of its Articles of Agreement and are a part of its country surveillance process, that tightening fiscal policy in 2023–2024 is appropriate and that an ambitious medium-term consolidation plan is necessary to preserve debt sustainability and rebuild buffers.
The IMF’s Article IV consultation report, published on December 19, stated that “(Executive) Directors welcomed the authorities’ near-term fiscal policy, which focuses on accelerating capital spending while tightening the fiscal stance,”
In the current fiscal year, the Indian government aims to reduce its budget deficit to 5.9 percent of GDP, and the Center is optimistic that it will reach this goal. By 2025–2026, the budget deficit is predicted to have decreased to 4.5 percent of GDP in the medium run.
The Indian government is “committed” to meeting the 4.5 percent fiscal deficit target, according to the IMF staff report.
The change will be applied almost equally in 2024–2025 and 2025–2026. According to their historical trend, state government deficits are anticipated to stay below the 3 percent GDP ceiling, the IMF continued.
They did, however, also argue that given India’s large public debt, further measures should be taken to reduce spending and raise revenue, including more changes to the Goods and Services Tax and subsidies, while maintaining an emphasis on public investment and providing targeted assistance for the most needy.
Regarding growth, the IMF projects that the Indian economy would grow by 6.3 percent this year and the following, which is 20 basis points less than the 6.5 percent government prediction. However, following the release of the GDP data for July through September, which was a blockbuster, the Indian government is poised to improve its growth forecast for the current year. The RBI has already increased its expectation to 7.0 percent, up 50 basis points.
It is anticipated that the IMF will publish its updated World Economic Outlook in January.
