Regulatory uncertainty plays role in India’s slowdown: IMF

IMF Chief Economist Gita Gopinath on Friday said that regulatory uncertainty in India is one of the reasons for the ongoing economic slowdown. Speaking at an event here, the Chief Economist of the International Monetary Fund (IMF) said that although reforms are important for an economy, they should come with clarity and certainty on the policies and regulations.

“I believe, in the slowdown, regulatory uncertainty has played a role. That’s another factor that needs to be addressed. It’s important for india to take up reforms but to be able to do this with greater clarity and greater certainty would help,” Gopinath said.

Meanwhile, rising inflation index on a near-term basis outweighed growth rate concerns for the Reserve Bank of India (RBI) and led the central bank to hold policy rates, while maintaining an accommodative stance, according to the minutes of the RBI’s latest Monetary Policy Committee (MPC) meeting released on Thursday.

“Economies need reforms and they are important but there also needs to be an environment of regulatory certainty, which is the clear rules of the game, what the particular policies are and how it impacts you. There has to be clarity on that,” Gopinath said at industry chamber FICCI’s 92nd Annual Convention.

Regarding the Goods and Services Tax (GST) regime, which is termed as India’s biggest tax reform, she said that more needs to be done to bring clarity and certainty regarding the regulations and tax rates.

“GST, which has been very important for formalising the indian economy, but again there... certainly more needs to be done on what the rules are, what the rates are going to be...”

On her recent announcement that the IMF may sharply revise India’s growth outlook for the current fiscal, she said that some high frequency indicators do not show an increase in India’s growth in the third and fourth quarters as was anticipated earlier.

“Our expectation was that the first two quarters of fiscal 2019-20 would be a slowing scenario and then there would be an uptick in the third and fourth quarter. Looking at some of the high frequency indicators we are not seeing the kind of uptick we were projecting, so this is why I mentioned tgat we will b revising the numbers again in January.”

The minutes of the December RBI’s MPC meeting policy showed that members were unanimous on inflation concerns amid slowing growth.

The MPC predicted rising inflation on a near-term basis, “but it is likely to moderate below target by Q2:2020-21”.

On the other hand, the MPC reduced the country’s FY20 GDP growth forecast from 6.1 per cent in the October policy to 5 per cent.

“Overall, several uncertainties cloud the growth-inflation outlook. First, the surge in food inflation in last three months, driven up by a spike in onion and other vegetable prices, could be transitory,” RBI Governor Shaktikanta Das was quoted as saying in the minutes.

“It is likely to reverse gradually as late kharif output comes to the market. In view of this, even as the current food price spike driven by vegetables can be looked through, there is a need for greater clarity as to how the overall food inflation path is going to evolve, as there is some uncertainty about the outlook of prices of certain non-vegetable food items such as cereals , pulses, milk and sugar,” he said.

“It is also not clear at this stage as to how the recent increase in telecom charges will play out even as CPI inflation excluding food and fuel has moderated,” he added.  On December 5, the RBI held the repo, or its short term lending rate for commercial banks unchanged at 5.15 per cent in its fifth review of the current fiscal.

Meanwhile, Fitch Ratings on Friday kept India’s credit worthiness indicated by its Long-Term Foreign-Currency Issuer Default Rating (IDR) unchanged at ‘BBB-’ stating that India’s growth outlook was stable.

The agency said that India’s rating balances a still strong medium-term growth outlook, compared with ‘BBB’ category peers, and relative external resilience stemming from solid foreign-reserve buffers against high public debt, a weak financial sector and some lagging structural factors, including governance indicators and GDP per capita. “Our outlook on India’s GDP growth is still solid against that of peers, even though growth has decelerated significantly over the past few quarters, mainly due to domestic factors, in particular a squeeze in credit availability from non-banking financial companies (NBFC) and deterioration in business and consumer confidence,” Fitch said.

Indo-Asian News Service