Clean up balance sheets of corporates, banks to rein in fiscal deficit: IMF

The Fund pegged the country’s current account deficit at 0.3 per cent of the gross domestic product (GDP) in the current fiscal year
The International Monetary Fund (IMF) has suggested to India that it should clean up balance sheets of banks, non-banking financial companies, and corporates to rein in fiscal deficit.

In its external sector report, IMF also called upon India to strengthen the governance of public sector banks.

The Fund pegged the country’s current account deficit at 0.3 per cent of the gross domestic product (GDP) in the current fiscal year.

Improving the business climate, easing domestic supply bottlenecks, and liberalising trade and investment will be important to help attract foreign direct investment (FDI), boost the current account financing mix, and contain external vulnerabilities, the Fund said.

“The current account deficit is projected to narrow to 0.3 per cent of GDP for India in 2020-21 driven mainly by lower oil prices and import compression due to weak domestic demand with unusually high uncertainty, including over the cyclical position of the economy,” the Fund said.

Gradual liberalisation of portfolio flows should be considered, while monitoring risks of portfolio flow reversals, it said.

However, economists do not agree that there would be current account deficit in FY21. ICRA Principal Economist Aditi Nayar pegged the current account balance at surplus of 0.9 per cent.

“Building in the faster normalisation of exports relative to imports, stabilisation in crude oil prices at a moderate level, expectation of revival in demand for gold closer to the festive season, and the adverse impact of economic uncertainty on remittances, we expect a current account surplus of $22-27 billion in FY21, or around 0.9 per cent of GDP.”

The bulk of this may be concentrated in Q1FY21, at $14-16 billion, given the subdued imports in this quarter. However, as domestic demand revives in the later months, imports may catch up, resulting in relatively smaller current account surpluses in Q2-Q4 of FY21, she said.

 


Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel