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India’s growth rate will remain strong, current account deficit will reduce

New Delhi: India’s economic growth rate is expected to remain strong, supported by macroeconomic and financial stability, according to the International Monetary Fund (IMF) assessment report released on Tuesday.

“Going forward, the country’s foundational digital public infrastructure and a strong government infrastructure program will continue to sustain growth. If comprehensive reforms are implemented, with greater contribution of labor and human capital, India has the potential for even greater growth,” the report said.

The report said the country’s current account deficit is expected to improve to 1.8 percent of GDP in fiscal year 2023/24 as a result of resilient services exports and, to a lesser extent, lower oil import costs.

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It estimates real GDP growth rates of 6.3 percent in fiscal year 2023/24 and fiscal year 2024/25 and says that “headline inflation is expected to gradually moderate to target, although this will remain subdued due to food price shocks.” remains unstable”.

India’s economy showed strong growth in the last year. Headline inflation has declined on average, although it remains volatile. Employment has surpassed pre-pandemic levels and while the informal sector remains dominant, progress has been made in formalization.

The report shows that the financial sector has been resilient – the strongest in several years – and largely unaffected by global financial stress into early 2023.

While the budget deficit has declined, public debt remains high and fiscal buffers need to be rebuilt.

Globally, India’s 2023 G20 presidency has demonstrated the country’s important role in advancing multilateral policy priorities, the report said.

The risks of the approach are balanced. A sharp slowdown in global growth in the near future will impact India through trade and financial channels. Additionally, global supply disruptions may lead to frequent commodity price volatility, which may increase fiscal pressure on India.

Domestically, weather shocks could reinvigorate inflationary pressures and lead to further restrictions on food exports, according to the IMF report.

On the positive side, stronger-than-expected consumer demand and private investment will boost growth. It said further liberalization of foreign investment could increase India’s role in global value chains, thereby boosting exports.

The IMF Executive Director broadly agreed with the emphasis on staff evaluation. He commended the Indian authorities for their prudent macroeconomic policies and reforms, which have resulted in strong economic performance, resilience and financial stability for the economy, even in the face of persistent global headwinds.

Noting that India is one of the fastest growing economies globally, Directors called for continuing appropriate policies to maintain economic stability and moving forward in major structural reforms to unleash India’s significant potential .

Directors welcomed the authorities’ near-term fiscal policy, which focuses on accelerating capital expenditure while tightening the fiscal stance.

The IMF directors also appreciated “the RBI’s proactive monetary policy actions and strong commitment to price stability.”

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