India Has to Liberalise Trade, Improve Labour Laws and Business Environment: IMF
There are many things which are working in India's favour, though tariffs are a big shock to the region.
Chennai: India has to liberalise trade, make labour laws more flexible and improve the business environment for the private sector to unleash its full potential in order to scale up, achieve higher growth to meet aspirations and compete with China, finds IMF.
India's fundamentals are pretty strong, growth is good, inflation is coming down, and fiscal deficit is well-managed. There are many things which are working in India's favour, though tariffs are a big shock to the region.
Growing at 6.6 per cent this year, India has some headwinds and some tailwinds. The headwinds are from tariffs, but as tailwind the first quarter came out at 7.8 per cent, much better than most people expected. The GST reforms also provide some fill-up to consumption.
“If India has to grow at the rate at which you're talking about in terms of being Viksit Bharat by 2047, India has to fire on all cylinders, strengthen domestic demand, strengthen integration within India,” said Krishna Srinivasan, Director of the Asia and Pacific Department, IMF.
If India wants to scale up and compete with China, it needs to liberalize trade, needs to make labour laws that much more flexible so that India can scale up. That's a big problem. It needs to do a lot in terms of improving the business environment. There are lots of regulations which impede the ability of the private sector to unleash its full potential,” he said.
In order to address both external demand and domestic demand, India should try to integrate more into global supply chains. India has signed free trade agreements with the UK, it's pursuing agreements with the European Union and Australia. “Those are all the right things to do because you also want to diversify your export markets so that, during any shock in one particular country, you have other ways to diversify that,” he added.
But beyond that, there are these structural reforms, deep structural reforms which are needed for India to grow at 8 per cent. Those structural reforms are fundamental. Macro policy framework is good for now, but these deeper reforms are needed to reach the aspirations.
