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Asia and Pacific > India

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Cover IMF Staff Country Reports
India: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for India
International Monetary Fund. Asia and Pacific Dept
Prudent macroeconomic policies have supported India’s economic resilience, with growth expected to recover from a recent softening and inflation expected to converge to target. Risks to the outlook include deepening geoeconomic fragmentation and a slower pace of domestic demand recovery.
Keywords:
IMF article; headline inflation; fund approval; gross investment; potential GDP; Anti-money laundering and combating the financing of terrorism (AML/CFT); Capital spending; Global; Eastern Europe
Cover IMF Working Papers
Foreign Exchange Intervention Under the Integrated Policy Framework: The Case of India
Jesper Lindé
,
Patrick Schneider
,
Nujin Suphaphiphat
, and
Hou Wang
This paper analyzes the effectiveness of foreign exchange intervention (FXI) in mitigating economic and financial shocks in India by applying the Integrated Policy Framework (IPF). It highlights how FXI can be a complementary tool in mitigating the tradeoff between output and inflation, specifically under large economic shocks amid temporarily shallow FX markets. The paper indicates that while FXI can soften adverse impacts on domestic demand and output during severe risk-off shocks, its benefits under normal conditions with liquid FX markets are limited.
Keywords:
Integrated policy framework; foreign exchange intervention; risk-off shocks; EM FX intervention proxy; RBI FX intervention; FX Market development; OTC FX turnover; rate Policy; Currency markets; Inflation; Central bank policy rate; Global
Cover IMF Working Papers
Dynamic Development Accounting and Relative Income Traps
Patrick A. Imam
and
Jonathan R. W. Temple
Previous research suggests that economy-wide poverty traps are rarely observed in the data. In this paper, we explore a related hypothesis: low-income countries rarely improve their position relative to the US. Using finite state Markov chains, we show that upwards mobility is indeed limited. Since capital-output ratios are similar across countries, and human capital is also converging, the persistence of low relative income seems to originate in the persistence of low relative TFP. We study the dynamics of relative TFP and how they interact with absolute levels of human capital, casting new light on the future of convergence.
Keywords:
Economic growth; development accounting; low-income trap; poverty trap; income trap; state Markov chains; country sample; OECD member country; relative TFP; Total factor productivity; Human capital; Growth accounting; Income; Capital productivity; Global
Cover Departmental Papers
Upgrading Fiscal Frameworks in Asia-Pacific
Enrique Flores
,
Pranav Gupta
,
Yinqiu Lu
,
Paulo A Medas
,
Dinar Prihardini
,
Hoda Selim
,
Weining Xin
, and
Masafumi Yabara
This paper seeks to guide the reform of fiscal frameworks in Asia-Pacific in the context of calls for a more active fiscal policy in a shock-prone world. It highlights that the cost of fiscal support is large and that fiscal frameworks, including fiscal rules, are being put to the test given the sharp increase in debt, high interest and weaker growth prospects. The stress is only compounded by long-term challenges like aging populations, climate change and the need to deliver on the sustainable development goals. In this context, it is timely to review the effectiveness of fiscal policy in Asia-Pacific and seek for ways to strengthen fiscal frameworks. After the global financial crisis, fiscal policy in Asia-Pacific became more countercylical and stronger than in other regions—especially in advanced economies. The paper shows that the degree of countercyclicality has been asymetric, with larger responses during periods of weak growth, and in particular in response to large shocks—the global financial crisis and the pandemic. It highlights that responses to the pandemic were large and used a wide range of tools, and how fiscal and monetary policy complemented each as they responded to large shocks. It looks into the deterioration of debt dynamics in Asia-Pacific, as public debt has been rising persistently across most countries driven by declining growth and rising deficits—particualrly after the global financial crisis for advanced economies and after the pandemic for emerging market and low income countries. The paper reviews fiscal frameworks across Asia-Pacific, including the use of fiscal rules, medium-term fiscal frameworks, and fiscal councils. It describes the characteristics of fiscal rules, which usually focus on debt and budget balances and are set by law but tend to lack well-specified enforcement mechanism or escape clauses. It highlights that compliance with the rules has worsened following the pandemic as—in contrast with the outturns before the pandemic--Asia-Pacific countries tend to show larger deviations relative to other regions. It also shows that despite the increase adoption of medium-term fiscal frameworks in Asia-Pacific forward guidance has been hampered by the lack of binding targets and ex-post analysis. Moreover, they do not seem to have resulted in better macro-fiscal forecast in part due to weak capacity and enforcement, lack of integration with the annual budget, and exposure to shocks—with risk analysis mostly limited to qualitative discussions. Proposed reforms seek to implement a comprehensive, risk-based approach to public finances. They focus on strengthening the medium-term orientation of fiscal policy through credible medium-term fiscal plans, fiscal rules linked to the medium-term strategy and the annual budgets, and a stronger reliance on fiscal councils. They also emphasize the need for a broader view of the public sector as fiscal policy is being conducted through multiple channels, which requires assessing and managing vulnerabilities and a significant improvement in fiscal statistics. They also address aging and climate change by focusing on assessing large intergenerational trade-offs, reporting on long-term debt dynamics, and on green medium-term fiscal frameworks that incorporate the effects of climate change and climate policies.
Keywords:
Fiscal Rules Fiscal Frameworks Medium-term Fiscal Frameworks Public Debt Sustainability automatic stabilizers Climate Change Population Aging; Asia-Pacific country; Asia-Pacific economy; Asia-Pacific region; IMF country team; SRDSF country; Fiscal rules; Fiscal governance; Global financial crisis of 2008-2009; Asia and Pacific; Global; Pacific Islands
Cover Finance & Development
Finance & Development, September 2024: Productivity and How to Revive It
International Monetary Fund. Communications Department
Productivity must play a more important role in driving sustained growth as our societies age. But there’s no consensus on how to reverse the broad slowdown in productivity growth seen across almost all countries over the past 20 years. F&D magazine’s September issue invites leading thinkers to examine productivity from multiple angles, including dynamism, innovation, demographics, and sustainability.
Keywords:
Productivity; total factor productivity; demographics; sustainable growth; economic growth; dynamism; innovation; international cooperation.; productivity gain; understanding productivity growth; productivity growth rebound; IMF photo; low-productivity firm; TFP advancement; Emerging and frontier financial markets; Tax avoidance; Global; West Africa; Europe; Central Asia; Asia and Pacific
Cover Technical Assistance Reports
Sri Lanka: Technical Assistance Report-Property Taxation at the National and Subnational Level
International Monetary Fund. Fiscal Affairs Dept.
This report analyzes Sri Lanka’s options for improving the fairness and progressivity of the tax system through the introduction of a nationwide property tax. Given constitutional constraints that limit the taxation of property at the central government level, it recommends taxing the imputed rental value of owner-occupied housing. With a suitable exemption threshold and a progressive tax rate structure, such a tax can support fiscal consolidation by raising revenue from the most affluent members of Sri Lanka’s society while introducing little distortions. Implementation and enforcement of the tax will require substantive investments in data infrastructure, including through the introduction of a digital sales price and rents register. The report also outlines options for improving the fairness and revenue productivity of subnational assessment rates (local property taxes) and suggests additional reforms that can complement the taxation of real property at the national and subnational level.
Keywords:
Property taxation; Imputed rental income tax; Simplified assessment approach; Sri Lanka; Fiscal consolidation.; imputed rental income; central government; roll number; rental contract; market rental value; Property tax; Transaction tax; Income and capital gains taxes; Income; Global; Australia and New Zealand
Cover Departmental Papers
Economic Diversification in Developing Countries: Lessons from Country Experiences with Broad-Based and Industrial Policies
Corinne C Delechat
,
Giovanni Melina
,
Monique Newiak
,
Chris Papageorgiou
,
Ke Wang
, and
Nikola Spatafora
This paper examines the significance and impact of broad-based and industrial policies on economic diversification in developing economies, supported by a literature reviews, case studies, and IMF analyses. Economic diversification entails shifting from traditional sectors, like agriculture and mining, to a variety of high-quality services and sectors. This transition is crucial for adapting to global market fluctuations and promoting sustainable growth and improved living standards. A literature review, including many IMF contributions, reveals a strong correlation between economic diversification and improved macroeconomic performance in developing countries, such as faster economic growth and higher incomes per capita. Factors influencing economic diversification include macroeconomic stability, infrastructure quality, workforce skills, credit access, regulatory environment, and income equality. Six case studies highlight the experiences of Costa Rica, Gabon, Georgia, India, Senegal, and Vietnam, demonstrating that successful diversification strategies require a long-term commitment and effective broad-based policies. Industrial policies can support diversification by addressing market failures, but they must be well-designed and effectively implemented. Common lessons include the necessity of maintaining macroeconomic stability, investing in human capital, and fostering competition. Sector-specific mechanisms like Special Economic Zones should be used cautiously, emphasizing underlying bottlenecks and minimizing fiscal costs. Country-specific insights include Costa Rica's strategic policy shift towards export orientation, Gabon's reduced dependence on oil, Georgia's market-friendly policies, India's skilled labor and software clusters, Senegal's infrastructure and business environment improvements, and Vietnam's transition from an agrarian to an industrial economy. The IMF's engagement in diversification emphasizes improving human capital, infrastructure, reducing trade barriers, and promoting international trade integration. Policymakers, researchers, and international organizations increasingly recognize the importance of economic diversification for resilient, sustainable, and inclusive growth, requiring nuanced policy interventions tailored to each country's context and capabilities.
Keywords:
Economic Diversification; Developing Economies; Industrial Policy; Macroeconomic Stability; IMF Analysis; IMF team; diversification strategy; countries' diversification experience; government policy; diversification result; Exports; Foreign direct investment; Service exports; Global; Sub-Saharan Africa; Asia and Pacific
Cover IMF Staff Country Reports
Union of the Comoros: Second Review under the Extended Credit Facility Arrangement and Request for a Waiver of Nonobservance of Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for the Union of Comoros
International Monetary Fund. African Dept.
This paper presents Union of Comoros’ Second Review under the Extended Credit Facility (ECF) Arrangement and Request for a Waiver of Nonobservance of Performance Criterion. Performance under Comoros’s economic reform program continues to be broadly satisfactory, and the authorities remain committed to the economic policies and reforms underpinning the ECF-supported program. Reforms are beginning to bear fruit, with visible signs of macroeconomic stabilization. However, Comoros continues to face the challenges of a small, fragile island state which requires steadfast program implementation and continued support from international partners. Monetary policy has contained inflation and ensured sufficient external buffers for Comoros and the stability of the peg. Continued efforts to stabilize the financial sector, including through the restructuring of the state-owned postal bank, addressing credit quality in the banking system, and strengthening banking supervision and resolution capacities are welcome. Support from international partners continues to be important for addressing the country’s large development needs and climate-related risks.
Keywords:
Comorian authorities; Union of the Comoros' Extended Credit Facility; government liquidity; customs administrations IT management systems; ECF arrangement; Arrears; Credit; Government debt management; East Africa; West Africa; Global; Middle East
Cover IMF Working Papers
Advancing India’s Structural Transformation and Catch-up to the Technology Frontier
Cristian Alonso
and
Margaux MacDonald
While India’s growth has been strong in recent decades, its structural transformation remains incomplete. In this paper, we first take stock of India’s growth to date. We find that economic activity has shifted from agriculture to services, but agriculture remains the predominant employer. Catch up to the technological frontier has been uneven, with limited progress in agriculture, but also in construction and trade, which have grown the most in terms of employment. We do find some Indian firms already operating at the technological frontier. These strong performers tend to be large firms. We then consider India’s employment challenge going forward. We find that India needs to create between 143-324 million jobs by 2050 and that doing so and with workers shifting towards more dynamic sectors could boost GDP growth by 0.2-0.5 percentage points. Structural reforms can help India create high-quality jobs and accelerate growth.
Keywords:
Economywide Production; Potential Output; Labor Productivity; Employment; Structural Transformation; Technological Frontier.; frontier employment; India's employment challenge; technology frontier; growth decomposition; IMF staff estimate; industry level; Agricultural sector; Productivity; Global
Cover IMF Working Papers
The Price of De-Risking Reshoring, Friend-Shoring, and Quality Downgrading
Diego A. Cerdeiro
,
Parisa Kamali
,
Siddharth Kothari
, and
Dirk V Muir
This paper estimates the costs of ‘de-risking’ scenarios between China and OECD members at the aggregate and sectoral levels. Aggregate large-scale de-risking – reshoring by increasing reliance on domestic production and friend-shoring by reducing imports from specific foreign countries – is quantified with the IMF’s GIMF model, suggesting significant permanent effects on the global economy. Returning integration to 2000 levels translates into long-term global GDP losses of 4.5 percent under reshoring and as much as 1.8 percent under friend-shoring. Friend-shoring does not necessarily deliver a boon to third countries as trade diversion benefits might be largely offset by contractions in China and OECD members. Sectoral de-risking, where all trade between rivals is eliminated in specific products, is quantified through empirical estimation of the scope for quality downgrading. The results demonstrate the potential for significant losses in input quality should there be an escalation in export bans. Losses are asymmetric against China in the specific case of semiconductors but can be significant for both sides in other sectors—including in critical areas such as environmental goods.
Keywords:
De-risking; fragmentation; reshoring; friend-shoring; export bans; quality downgrading.; GIMF model; quality downgrading; trade diversion benefit; OECD member; OECD economy; Global value chains; Exports; Imports; Global; Southeast Asia; Asia and Pacific