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IMF Chief Economist Gita Gopinath has said that the Modi government should undertake structural reforms such as bank clean-up and labour reforms to address the slowdown in domestic demand. her remarks comes at the back- drop of economic growth slowing to a six-year low.
Responding to a question, Gopinath said, “The extent of the slowdown of the Indian economy has surprised many, including us here at the IMF (International Monetary Fund).”
“Growth slowed further to a six-year low of 4.5 per cent (year-on-year) in the second quarter of FY2019-20 (July-September 2019), from 5 percent (year-on-year) in the previous quarter.
“A sharp moderation of investment, slowing consumption growth, and an inventory rundown contributed to the slowdown,” she said.
“We see several factors underlying the weakness of consumption and investment,” said the top IMF economist.
Gopinath, 48, who is travelling to India this week, rooted for government policies focusing on managing a slowdown in domestic demand, and on boosting productivity growth and supporting employment creation in the medium term.
“Given the cyclical position and the structural challenges of the Indian economy at this point, we recommend that policies focus on managing the slowdown in domestic demand, and on boosting productivity growth and supporting employment creation in the medium term,” she told PTI in an interview.
Recommending a series of key policy priorities for the Prime Minister Narendra Modi government, she said, “Politically, the time — early in the government’s second term — is right for a structural reform push.”
GDP growth slowed for the sixth consecutive quarter in the July-September quarter to 4.5 per cent as manufacturing slumped on low domestic consumption.
Gopinath said the policy priorities of the government should also include a credible fiscal consolidation path that is more ambitious than currently envisaged by the government.
“This is needed to reduce the high level of debt and reduce crowding out which would free up financial resources for private investment.
“This should be driven by subsidy-spending rationalisation and tax-base enhancing measures,” Gopinath said.
