India must address supply bottlenecks to see faster growth:IMF

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As India heads for general elections, the IMF today set the agenda for the next government saying that addressing supply bottlenecks and structural challenges will be essential to achieve faster growth, job creation and poverty reduction.

"Addressing supply bottlenecks and structural challenges—particularly in the agriculture and power sectors, and in the pricing and allocation of natural resources (including coal, natural gas, and fertilisers)—will be essential to achieve faster growth, job creation and poverty reduction," the IMF said in its staff report at the conclusion of its annual consultations with India.

Stating that India's growth is expected to slow to 4.6 per cent this fiscal year, the IMF in its key policy recommendations said high and persistent inflation is a key macroeconomic challenge facing the country.

"If external pressures from global financial market volatility resume, rupee flexibility should be the first line of defence, complimented by use of reserves, increases in short-term interest rates, actions on the fiscal front, and further easing of constraints on capital inflows," IMF said.

Tax and subsidy reforms will be required to durably lower fiscal imbalances, the IMF said adding that enhanced financial sector supervision, better monitoring of banks' credit quality, and improved information on corporate vulnerabilities will be needed as basis for tackling financial sector strains.

Referring to the sharp drop in India's growth rate from an average 8.5 per cent previously, the IMF said the slowdown has become generalised across sectors after initially being a problem of stalled infrastructure and corporate investment.

The IMF said against the background of parliamentary elections and prospective global liquidity tightening, policy discussions centred on mitigating risks associated with the challenging domestic and external economic environment.

"While major policy actions may understandably be difficult to implement ahead of the general elections expected by May 2014, any positive steps taken would enhance investment, improve the supply response of the economy, and help raise potential growth," it said.

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