New Delhi: The International Monetary Fund (IMF) has said that India needs to create more employment and credit to power the country’s economy back to the growth path that has been disrupted due to the pandemic and geo-political crisis.
According to a report by Bloomberg, Nada Choueiri, who is IMF’s mission chief for India, said India’s gross domestic product (GDP) growth potential over the next five years has slipped to 6.2 per cent from an earlier projection of up to 7 per cent. This has happened mainly because of the Covid-19 pandemic and India’s shadow banking sector.
Choueiri said that faster expansion is possible “if there are reforms in the financial sector to get credit going strongly again, and labour market reforms to support greater labour force participation and employment,” adding that capital and labour as “important inputs.”
This week the IMF lowered India’s growth projection estimate to 8.2 per cent from 9 per cent in January for the fiscal year that started April 1.
The monetary body has flagged risks to demand from a sharp rise in commodities prices and supply chain disruptions, thus slowing the pace of the GDP to 6.9 per cent for next year.
“We had lost two years of growth” because of the pandemic, Choueiri said, while adding that “There is still catch up growth happening in India.”
According to the report, India still continues to remain the world’s fastest-expanding major economy even at that pace.
However, soaring inflation rates could drag the growth activity.
According to the IMF, consumer price rises averaging 6.1 per cent this year, which is higher than the Reserve Bank of India’s (RBI’s) forecast of 5.7 per cent.
In its monetary policy decision in April, the RBI signalled a pivot toward prioritising rising costs, and away from supporting growth.