IMF Report Highlights on India(Dec 2019)

  • India should “recommit” to cutting on debt by bringing down its public sector borrowing requirements and enhance focus on having greater fiscal transparency to help investors make informed economic decisions.
  • Despite some improvement in reported fiscal deficits, debt as a share of GDP remains little changed over the past decade partly due to increases in off-budget financing

  • More fiscal transparency would mean better economic policy in India…Getting the word out on India’s true fiscal stance could yield significant benefits for policymakers and the Indian economy
  • It has estimated the Centre’s fiscal deficit to widen to 3.7 per cent of GDP in FY20 and 3.8 per cent next fiscal year, against the projection of 3.3 per cent and 3 per cent given in the Budget
  • It pointed out that as part of the Group of 20, India has already committed to publishing general government fiscal information on a quarterly basis, which should enable better monitoring and faster policy reactions.
  • As a complement, India will have to improve the collection and disclosure of information on public enterprises, especially at the state level, in order to better anticipate possible cases of financial distress and minimise their costs for taxpayers
  • It noted that much of the discussion regarding fiscal policies in India focuses on its central and states’ government deficits.
  • A broader and more relevant measure of the government’s fiscal position – and its bearing on the economy – is the public sectors borrowing requirement, which has risen to about 8.5 per cent of GDP
  • This estimate 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
  • In India’s case, household’s net financial savings have been lower than the public sector borrowing requirement in recent years, the IMF said adding it implies that private investment projects face stiff competition for funding, making financing more costly and preventing potentially viable projects from being initiated.
  • the high borrowing requirement of the public sector also holds India back as it strives to catch up with more advanced countries by making private-sector investment more costly.
  • It suggested that in the coming years, “India should recommit to debt reduction by reducing its public sector borrowing requirement”.
  • Going forward, it suggested that the federal and state governments should look to provide the public with more user-friendly and forward-looking information and narratives and adopt common standards to ensure that citizens in all states have equal access to fiscal information.

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