India's reforms bearing fruits, make case for more steps: IMF

The implementation of the goods and services tax (GST), despite a bumpy road, is going to help secure the solidity of foundation of public finances, David Lipton, the International Monetary Fund (IMF)'s First Deputy Managing Director David Lipton, told PTI.

The recent steps taken to deal with the accumulated problems in banks are important ones, Lipton said, as he identified digital ID technology and other structural reforms important moves towards inclusive growth and making India an economic powerhouse.

"There's certainly more to be done but India is certainly seeing benefits from what it has done," he said on the sidelines of the Spring meeting of the IMF and the World Bank.

"India's reforms have been bearing fruits and we see that in growth performance. (India's) growth last year was 6.7 per cent. We're now projecting 7.4 this fiscal year and 7.8 the following (year). That's a very healthy acceleration and it really means for a country that is huge, adds up to an awful lot of economic activity.

"India's goal is to have sustained growth and to have a growth that boosts the living standards very broadly across the population. The reforms that have been carried out so far have had benefits and make a very good case for carrying forward with further reforms," Lipton said.

A country of India's size has to be very careful to keep public finances under control because any interruption of economic activity that comes from fiscal difficulties would be a setback, he said.

Strengthening the foundation of fiscal finances with the GST is one reform that stands out, Lipton said.

Asked if these reforms have been inclusive enough, Lipton said the eco-system being built around digital ID technology offers a big help in this regard.

The problem of inclusion in India is particularly a difficult one given the size of the country and the remoteness of much of the population as well as the complexity of some very overburdened urban areas, he said.

"There's been progress, but I think that this is a challenge that has not been not solved yet and may not be solved for a while. But what makes sense is to carry on.

"I hope that in India's case, new technologies, some of which are already being applied can help overcome remoteness and can promote inclusivity, whether it's retina ID numbers system and the architecture of finance and commerce that's going to be built around that or some of the new fintech innovations that allow people to do commerce or banking, whether it's savings and earning on their savings or borrowing may be useful for the creation and building businesses through new technologies," Lipton said.

The Indian government is effectively looking at how technologies can lead to better efficiency and less waste and corruption in government interactions with the people, whether it's in spending and benefits or the collection of taxes, the senior IMF official said.

"So, I think in a big country, technology can be a way to leapfrog the more old-fashioned ways in building connectivity that leads to inclusion in the country," he said.

Asked about the Aadhaar Card technology, Lipton said it is relatively new and seems to have many advantages.

"It surely has huge promises and could help overcome remoteness and promote inclusion," he said.

There certainly are possible drawbacks, he noted.

"From the beginning it's been clear that issues of privacy and data security are going to arise when you use a technology like this. And it'll be the societies' job to figure out the do's and don'ts of that," he said.

"I hope it (India's progress) will show in poverty reduction statistics and eventually in a measurement of metrics of inclusion.

"I've said there's more to be done. There are further reforms both in terms of consolidating the budget situation to ensure that there's never an incident of doubt about fiscal finances in terms of making the banking system more competitive and dealing with the legacy problems of NPAs (non- performing assets)," he said.

The important job is not just to recapitalise, but to change the governance and change the competitiveness so that banks serve as a positive force, allocating credit well and being a driving force in the economy, he said.

Asked about IMF Managing Director Christine Lagarde's remarks that she does not expect any major economic reforms in an election year, Lipton said: "It's always a difficult to make policy during election years.

"We certainly hope that there can continue to be a progress, but it's really the judgement of the politicians, the government about what can be done when".

"If policies are managed well and reforms are supportive of inclusive growth, India's economy could become a powerhouse economy. It is already, I think the 10th largest, but with the population and the growth rate there's more potential.