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IMF / INDIA ECONOMY
STORY: IMF / INDIA ECONOMY
TRT: 2:50
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGES: ENGLISH / NATS
DATELINE: RECENT
RECENT - HYDERABAD, INDIA
1. Wide shot, Hyderabad city
2. Med shot, man unloads fruit for market
3. Close up, watermelons
RECENT – WASHINGTON, DC
4. SOUNDBITE (English) Masahiko Takeda, Mission Chief to India, International Monetary Fund:
“India’s economic performance and its future are, in short, very bright. Before the global financial crisis India was growing at the rate above nine percent. And, of course, during the crisis there was a slowdown, but more recently the growth has picked up to close to nine percent. And over the medium term we expect that India will continue growing at a pretty high rate.”
RECENT - HYDERABAD, INDIA
5. Various shots, young people talk in the street
RECENT – WASHINGTON, DC
6. SOUNDBITE (English) Masahiko Takeda, Mission Chief to India, International Monetary Fund:
“Inflation has been certainly one of the concerns we have had about India’s economic stability. And until some time ago, inflation measured by various indicators was double-digit. It has come down to a high single digit more recently, partly because the high food prices caused by the bad monsoon rain last year is dropping out of the sample. But still, we see a pretty strong underlying inflation pressure still in there.
RECENT - HYDERABAD, INDIA
7. Various shots, man counting money
RECENT – WASHINGTON, DC
8. SOUNDBITE (English) Masahiko Takeda, Mission Chief to India, International Monetary Fund:
“Reserve Bank of India, which is in charge of monetary policy, has taken actions, starting from late last year, so monetary policy has been appropriately tightened. However, in our view, there’s a possibility that more action, further monetary tightening action, may be needed to contain the high inflation.”
RECENT - HYDERABAD, INDIA
9. Various shots, sari shop
RECENT – WASHINGTON, DC
10. SOUNDBITE (English) Masahiko Takeda, Mission Chief to India, International Monetary Fund:
“India’s poverty has been declining thanks to very rapid growth, but still the level is high and India has a long way to go. To cope with this issue the Indian government has been rolling out and planning to continue to roll out ambitious social programs, number one. And number two, they are emphasizing the importance of infrastructure investment as a bottleneck of the future growth. And, you know, without future growth, employment won’t be generated and then poverty reduction does not happen.
RECENT - HYDERABAD, INDIA
11. Wide shot, traffic
In their annual assessment of the Indian economy, economists from the International Monetary Fund (IMF) said they expect India to grow above trend this year, with high levels of growth continuing over the medium term.
“India’s economic performance and its future are, in short, very bright. Before the global financial crisis India was growing at the rate above nine percent. And, of course, during the crisis there was a slowdown, but more recently the growth has picked up to close to nine percent. And over the medium term we expect that India will continue growing at a pretty high rate,” said the IMF’s mission chief for India, Masahiko Takeda.
India weathered the recent global financial crisis well, and since mid-2009 domestic demand has powered a vigorous recovery. The country’s growth rate remains the strongest in the world.
In its report, the IMF backed the authorities’ policy of exiting from the stimulus implemented over the last two years. But this exit strategy remains incomplete.
Given the high level of government debt, existing strong domestic demand, and large capital inflows, IMF economists said that fiscal policy is the preferred method for tightening.
In their assessment, the report’s authors welcomed the authorities’ renewed commitment to fiscal consolidation: the government has laid out an ambitious roadmap to reduce public debt and deficits, and high growth is expected to contribute toward this goal as well.
The IMF also supported the aim to increase public investment, especially in infrastructure, and to improve social outcomes. The challenge will be to make savings elsewhere to meet these objectives while remaining on the consolidation path.
The IMF report also recommends further tightening monetary policy to meet the authorities’ inflation objectives and anchor inflation expectations.
With little or no spare capacity in the economy, coupled with the threat of rising food prices, inflation is currently elevated, in the range of 8½ -10½ percent.
Inflation is expected to come down slowly as last year’s high food prices caused by poor rainfall drop out of the inflation calculation, but underlying price pressures are still strong, say IMF economists.
“Inflation has been certainly one of the concerns we have had about India’s economic stability. And until some time ago, inflation measured by various indicators was double-digit. It has come down to a high single digit more recently, partly because the high food prices caused by the bad monsoon rain last year is dropping out of the sample. But still, we see a pretty strong underlying inflation pressure still in there,” Takeda said.
Over the last year, the authorities have raised policy rates and the cash reserve requirement. Further increases in policy rates would help bring real short-term interest rates in line with historical norms and help contain inflation, they suggest.
“Reserve Bank of India, which is in charge of monetary policy, has taken actions, starting from late last year, so monetary policy has been appropriately tightened. However, in our view, there’s a possibility that more action, further monetary tightening action, may be needed to contain the high inflation,” said Takeda.
The current account deficit is projected to reach 3.3 percent of GDP in 2010/11 and 3.5 percent next year, say the economists in their report. Up till now, the deficit has been financed mainly by foreign direct investment and equity inflows, but the authorities need to keep an eye on the level of the current account deficit.
Over time, deepening the corporate bond market, increasing the supply of shares, and further liberalizing foreign direct investment would increase the country’s capacity to absorb capital from abroad.
Infrastructure investment has grown rapidly in India over the past few years, and the authorities plan to double the money spent on this sector from $500 billion in the five years ending 2011/12, to $1 trillion in the following half decade. Private participation is expected to account for half of the total.
“India’s poverty has been declining thanks to very rapid growth, but still the level is high and India has a long way to go. To cope with this issue the Indian government has been rolling out and planning to continue to roll out ambitious social programs, number one. And number two, they are emphasizing the importance of infrastructure investment as a bottleneck of the future growth. And, you know, without future growth, employment won’t be generated and then poverty reduction does not happen,” said Takeda.
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