Dubai, Sept 18: India's failure to consolidate public finances in this year's budget is of 'deep concern', the International Monetary Fund said on Thursday as it warned that growth would fail to reach official targets of eight per cent. "Fiscal policy is clearly on an unsustainable path. The absence of consolidation efforts in this year's budget and delays in introducing the value-added tax (VAT) are thus of deep concern," the fund said in its autumn World Economic Outlook.
The IMF forecast Indian gross domestic product will grow 5.6 per cent in 2003 and 5.9 per cent next year.
"The expansion remains well below the eight per cent rate targeted by the authorities, undermining official goals for reducing poverty and regional disparities," it said.
As a result, the government's deficit was predicted to hit about 10 per cent of gross domestic product (GDP) for the fifth year running with the national debt nearing 100 per cent of GDP.
Plus, massive foreign exchange inflows have pushed reserves to a record level and this was making it harder for monetary policy to do its job.
The remedy, according to the IMF, was a tough programme of structural measures, including labour market and bankruptcy reform, agricultural and trade liberalisation and the removal of laws which stop labour-intensive industries from consolidating.
"Accelerated structural reforms...remain essential to stimulate potential growth and reduce poverty," it said. Bureau Report