IMF says India in midst of significant economic slowdown, calls for urgent policy actions
Washington: India is now in the midst of a significant economic slowdown, the International Monetary Fund has said, urging the government to take urgent policy actions to address the current prolonged downturn.
In its report released Monday, the IMF Directors noted that India's rapid economic expansion in recent years has lifted millions of people out of poverty. However, in the first half of 2019, a combination of factors led to subdued economic growth in India.
"The issue in India currently is the growth slowdown. We still believe it is mostly cyclical, not structural... because of the financial sector issues, we think, the recovery will be not as quickly quick as we thought earlier. That's the main issue," Ranil Salgado, Mission Chief for India in the IMF Asia and Pacific Department told PTI in an interview as it released its annual staff report on India.
With risks to the outlook tilted to the downside, the IMF Directors called for continued sound macroeconomic management. They saw an opportunity with the strong mandate of the new government to reinvigorate the reform agenda to boost inclusive and sustainable growth, the report said. The staff report was done in August when the IMF was not fully aware of India's current economic slowdown.
"India is now in the midst of a significant economic slowdown," Salgado told reporters over phone.
Growth in the second quarter of FY 2019/20 came in at a six-year low of 4.5 per cent (y/y), and the composition of growth indicates that private domestic demand expanded by only 1 per cent in the quarter. Most high-frequency indicators suggest that weak economic activity has continued into December, he said.
Salgado attributed this to the abrupt reduction in non-bank financial companies' (NBFC) credit expansion and the associated broad-based tightening of credit conditions appears to be an important factor and weak income growth, especially rural, has been affecting private consumption.
Private investment has been hindered by the financial sector difficulties (including in the public sector banks (PSBs)) and insufficient business confidence, he said. Some implementation issues with important and appropriate structural reforms, such as the nation-wide goods and services tax (GST), may also have played a role, he added.
Responding to a question, Salgado said that the new growth projections for India, which will come out in January, would be significantly lower than the previous ones.
"By other measures, India still is doing well. Reserves have risen to record level. The current account deficit has narrowed. Inflation, although we have a little jump right now because of vegetable prices, we think (it) has been under control for the last few years. So, by other measures, India is doing quite well. The issue is primarily how to address the growth slowdown," Salgado said.
Responding to a question, he said that the IMF has been surprised on India's slowdown. But he responded in negative if this slowdown can be described as an economic crisis.
"I think that would be going too far to say that. What we have seen is a growth slowdown. It may be longer than we had originally anticipated. But other elements like on the external side, on inflation, those are under controlled," he told PTI.
In the short term, he said, the most critical thing is carrying out reforms in the financial sector.
"We have, what we used to call a twin balance sheet problem being in the commercial banks and corporate sector. Now we may add additional balance sheet issue, which is on the NDFs. I'm including housing finance companies in that sector that as well.
"So the most immediate thing would be to try to have some policies related to restoring the health of this sector," he said.
Some steps have already been meaning the improvements that should be soon in place in terms of regulation of the sector, there is more information related to the sector; the steps to have a process to its resolution by including them, at least initially in the IBC process.
"On that though, we think a more comprehensive financial sector resolution plan or act as needed. There were earlier thoughts in this area by the government and we think those should be pursued again, because there are certain complications related to financial sector that don't necessarily work well in a simple kind of insolvency and bankruptcy code. It would be important to have a more comprehensive framework specifically for financial sector," the IMF official said.
Observing that early in the term is the time to push for structural reform, he said the current government in its first term carried out majority of its reforms early in the term.
"It is also true globally that it is easier to pursue structural reforms in the first half of the term," Salgado said.
From the IMF perspective, these areas are labour, land, different product market reform, continuing to enhance competition and also pursuing some of the more medium to long term reforms such as in education and health, he said.
Noting that the IMF believes that India has fiscal base at-risk, Salgado said that as a result New Delhi's ability to use a fiscal policy for stimulus is very limited.
"India already has a relatively high general government deficits and general government debt," he added.
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3rd T20I: A three-match 'audition' starts for Gill to find his game back
Dharamsala (PTI): The countdown to save his place in the playing XI begins for a beleaguered Shubman Gill, who is likely to get three matches against South Africa to prove his worth before the Indian team management switches to a ‘Plan B’ ahead of the T20 World Cup, starting in six weeks.
As India gear up to play the third T20I against the Proteas on Sunday in sub-10-degree temperatures in the lap of the ice-clad Dhauladhar range, things are suddenly heating up in the Indian dressing room, with the prolonged poor form of skipper Suryakumar Yadav coming under the scanner.
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Worse, his deputy Shubman Gill, who was pushed into the XI at the expense of a settled Sanju Samson, is not inspiring much confidence.
The South African pace attack featuring Anrich Nortje, Marco Jansen, Lungi Ngidi, Ottniel Baartman and Lutho Sipamla — has shown how to bowl on Indian tracks, and the HPCA Stadium strip, offering extra bounce and some movement off the surface, will certainly keep them interested.
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Among all T20 sides, South Africa, in terms of personnel, appears to have the requisite balance to win the trophy in the Indian subcontinent this time. Quinton de Kock’s return, along with the likes of Aiden Markram, Dewald Brevis, Donovan Ferreira, David Miller and all-rounder Jansen, gives their batting an intimidating look.
With only eight games, starting from the third T20I, left before the start of the T20 World Cup title defence, India's under-fire head coach Gautam Gambhir won't be able to afford, two out-of-form top-order batters in the starting line-up.
Being the skipper of the side, Surya will certainly have immunity going into the T20 World Cup despite being completely out of form for the past one year but same can't be said about Gill, who wasn't the original choice as an opener.
Gill's entry into the T20 set-up was a classic case of trying to fix something that ain't broken and things haven't looked good so far.
In this backdrop, Gill would need to bat out of his skin to prove that Ajit Agarkar-led committee wasn't wrong in throwing Samson under the bus for one bad series against England.
The stylish Indian Test and ODI skipper will have to find his T20 game and at least score in two of the three matches if he doesn't want Samson to get his rightful place back or for that matter, find Yashasvi Jaiswal, with a fabulous T20I strike-rate of 165, enter the fray during New Zealand series.
Lack of clarity
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While head coach Gambhir is too proud a person to admit but sending Axar Patel as a one drop batter during the second T20I was a "tactical brain fade" from the team's think-tank.
The kind misstep that was taken with Axar's promotion is unlikely to be repeated in the third game where skipper is expected to go back to No.3 where he has got a lot of success in his first few years at the international level.
Similarly, Shivam Dube being sent at number eight due to the shuffling of batting order was another poor call which would need course correction in the next game.
Is there a place for Kuldeep Yadav?
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Kuldeep Yadav is one bowler who has consistently troubled the Proteas batter but in an Indian team where batting till No. 8 is non-negotiable, the left-arm wrist spinner often finds himself getting the rough end of the stick.
At Dharamsala too, he might have to sit out as Kuldeep and Varun Chakravarthy, two non-batters can't be clubbed in the same T20 playing eleven as that would lead to compromise in batting depth.
While Arshdeep hasn't had a good series so far, it will be interesting to find if team management can find a place for Kuldeep in the playing eleven with Hardik Pandya sharing the new ball with Jasprit Bumrah.
The five-match series is currently tied 1-1.
Teams:
India: Suryakumar Yadav (captain), Shubman Gill, Abhishek Sharma, NT Tilak Verma, Axar Patel, Hardik Pandya, Shivam Dube, Jitesh Sharma (wk), Varun Chakravarthy, Arshdeep Singh, Jasprit Bumrah, Sanju Samson (wk), Harshit Rana, Kuldeep Yadav, Washington Sundar.
South Africa: Aiden Markram (captain), Quinton de Kock, Reeza Hendricks, Dewald Brevis, David Miller, Tristan Stubbs, Donovan Ferreira, Marco Jansen, Lutho Sipamla, Ottniel Baartman, Anrich Nortje, Lungi Ngidi, Corbin Bosch, Keshav Maharaj, George Linde.
Match Starts at 7 pm.
