India needs to implement in the medium-term substantial structural reforms which could enhance growth to come out of the slowdown, said the International Monetary Fund (IMF), India in its 2019 Article IV Consultation-Staff Report. “India’s substantial growth potential depends critically on the implementation of the growth-enhancing structural reforms”, it said. The world financial body said:

“We see several possible factors behind the slowdown. “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. “Weak income growth, especially rural, has been affecting private consumption, and private investment has been hindered by the financial sector difficulties, including in the public sector banks (PSBs) and insufficient business confidence,” the IMF said.

It further added finally some implementation issues with important and appropriate structural reforms, such as the nationwide goods and services tax (GST), may also have played a role. The Staff Report, which was completed in early October will be further changed when the IMF will release the January update of the World Economic Outlook, it said. The IMF noted that addressing the current downturn and returning India to a high growth path requires urgent policy actions.

The near-term policy mix needs to be mindful of supporting economic activity and restoring confidence, while recognising significant fiscal constraints. “In the medium-term, realising India’s substantial growth potential depends critically on the implementation of growth-enhancing structural reforms. On the latter, we believe the government needs to reinvigorate the reform agenda, with evidence globally indicating it is important to take advantage of its new mandate early in its term”, it pointed.