1. On behalf of our authorities, we would like to thank staff for a well-written, comprehensive and evenhanded assessment of recent macroeconomic and financial sector developments in India and the evolving outlook. The report is the outcome of the productive and candid discussions that the Mission had with our authorities. Our authorities broadly share the staff’s assessment.
2. The Indian economy has made a remarkable turnaround since mid-May 2013 when the ‘taper tantrum’ induced turmoil in global financial markets had a significant impact on the Indian economy. Three main concerns that arose were: a high and rising current account deficit; high fiscal deficit; and elevated inflation and inflation expectations. Our authorities did not lose time to take quick, decisive, and well-thought out policy measures to address the emerging vulnerabilities. As a result, the present situation marks a significant improvement over that which prevailed in May 2013. India’s current account deficit has declined sharply; inflation and inflation expectations have moderated significantly; and the fiscal deficit is being contained. Our authorities continue to pursue the path of fiscal consolidation. Furthermore, various measures taken by the newly elected government at the Centre have led to a significant improvement in business confidence.
3. Even as the macroeconomic situation is improving, some challenges remain to put the economy on a sustainable high growth path. Investment activity remains weak due to some segments of the corporate sector being overleveraged along with their related impact on bank balance sheets. A full-blown recovery of the private sector is thus being restrained. Fiscal consolidation could also have some impact on the speed of economic activity. Our authorities are, therefore, trying to strike a fine balance between supporting the recovery and pursuing a prudent fiscal policy. The new government is pursuing a policy regime that promotes higher growth and lower inflation, accompanied by a sustained external sector balance.
The details are available in the Press Note of January 30, 2015 and could be accessed at http://mospi.nic.in/Mospi_New/upload/nad_press_release_30jan15.pdf