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IMF Country Report No. 22/386
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IMF Country Report No. 22/386
INDIA
2022 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR INDIA
December 2022
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2022 Article IV consultation with India, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its November 28, 2022 consideration of the staff report that concluded the Article IV consultation with India.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on November 28, 2022, following discussions that ended on September 27, 2022, with the officials of India on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on November 7, 2022.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for India.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2022 International Monetary Fund
Press Release
PRESS RELEASE
PR22/444
IMF Executive Board Concludes 2022 Article IV Consultation with India
FOR IMMEDIATE RELEASE
Washington, DC – December 22, 2022: On November 28, The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with India.
The economy has rebounded from the deep pandemic-related downturn. Real GDP grew by 8.7 percent in FY2021/22, bringing total output above pre-pandemic levels. Growth has continued this fiscal year, supported by a recovery in the labor market and increasing credit to the private sector. New COVID cases have fallen to low levels, supported by high vaccination rates. The free administration of booster shots and broader booster eligibility criteria should help improve vaccine coverage.
Policies are addressing new economic headwinds. These include inflation pressures, tighter global financial conditions, the fallout from the war in Ukraine and associated sanctions on Russia, and significantly slower growth in China and advanced economies. The authorities have responded with fiscal policy measures to support vulnerable groups and to mitigate the impact of high commodity prices on inflation. Monetary policy accommodation has been gradually withdrawn and the main policy rate has been increased by 190 basis points so far in 2022.
Growth is expected to moderate reflecting the less favorable outlook and tighter financial conditions. Real GDP is projected to grow at 6.8 percent and 6.1 percent in FY2022/23 and FY2023/24 respectively. Reflecting broad-based price pressures, inflation is projected at 6.9 percent in FY2022/2023 and is expected to moderate only gradually over the next year. The current account deficit is expected to increase to 3.5 percent of GDP in FY2022/23 as a result of both higher commodity prices and strengthening import demand.
Uncertainty around the outlook is high, with risks tilted to the downside. A sharp global growth slowdown in the near term would affect India through trade and financial channels. Intensifying spillovers from the war in Ukraine can cause disruptions in the global food and energy markets, with significant impact on India. Over the medium term, reduced international cooperation can further disrupt trade and increase financial markets volatility. Domestically, rising inflation can further dampen domestic demand and impact vulnerable groups. On the upside, however, successful implementation of wide-ranging reforms or greater than expected dividends from the remarkable advances in digitalization could increase India’s medium-term growth potential.
Executive Board Assessment2
Executive Directors concurred that the authorities have appropriately responded to post-pandemic economic shocks with fiscal policy measures to support vulnerable groups and with front-loaded monetary policy tightening to address elevated inflation. They generally noted that while public debt sustainability risks have increased, these risks are mitigated given the debt characteristics. Directors encouraged a more ambitious and well-communicated medium-term fiscal consolidation, anchored on stronger revenue mobilization and further improvement in expenditure efficiency, while high-quality spending on infrastructure, education and health is protected. They also observed that further improvements in public financial management, fiscal institutions and transparency would support consolidation efforts.
Directors noted that additional monetary policy tightening should be carefully calibrated and clearly communicated to balance inflationary objectives and impact on economic activity. Noting that India’s external position was broadly in equilibrium, Directors observed that the exchange rate should continue to act as a shock absorber with foreign exchange intervention limited to addressing disorderly market conditions. Directors welcomed the authorities’ plans to introduce a central bank digital currency.
While noting the improvement in corporate and financial sector balance sheets, Directors encouraged additional measures to counter risks stemming from tightening financial conditions. They observed that banks should be encouraged to build additional capital buffers and recognize problem loans and noted that targeted prudential tools could strengthen the banking system’s resilience to rising interest rate risks. Directors encouraged the authorities to make further progress on financial sector reforms.
Directors commended the authorities for the remarkable achievements in digitalization. Digital public infrastructure has enabled the rapid deployment of support during the pandemic, and digital advances have facilitated efficient payments and increased financial inclusion. Narrowing the digital divide through improved access and literacy would further support productivity gains.
Directors encouraged the authorities to make additional progress on the structural reform agenda. Increasing female labor force participation, reducing youth unemployment and reducing informality remain critical to sustaining strong and inclusive growth. Strengthening governance and the regulatory framework would foster transparency and safeguard public accountability. Directors welcomed new trade agreements and observed that additional tariff reduction could help deepen India’s integration in global value chains and support growth.
Directors noted India’s important progress in implementing its climate agenda, including through increasing the share of renewables in energy production and improving energy efficiency. Directors observed that additional efforts would be needed to meet the authorities’ net zero objective.
India: Selected Economic and Financial Indicators, 2018/19-2023/24 1/
Data are for April–March fiscal years.
Differs from official data, calculated with gross investment and current account. Gross investment includes errors and omissions.
Divestment and license auction proceeds treated as below-the-line financing.
Includes combined domestic liabilities of the center and the states, and external debt at year-end exchange rates.
India: Selected Economic and Financial Indicators, 2018/19-2023/24 1/
| 2018/19 | 2019/20 | 2020/21 | 2021/22 | 2022/23 | 2023/24 | |
| Est. | Projections | |||||
| Growth (in percent) | ||||||
| Real GDP (at market prices) | 6.5 | 3.7 | -6.6 | 8.7 | 6.8 | 6.1 |
| Prices (percent change, period average) | ||||||
| Consumer prices - Combined | 3.4 | 4.8 | 6.2 | 5.5 | 6.9 | 5.1 |
| Saving and investment (percent of GDP) | ||||||
| Gross saving 2/ | 30.2 | 29.4 | 28.8 | 30.0 | 29.4 | 30.1 |
| Gross investment 2/ | 32.3 | 30.2 | 27.9 | 31.2 | 32.8 | 33.0 |
| Fiscal position (percent of GDP) 3/ | ||||||
| Central government overall balance | -3.9 | -4.8 | -8.6 | -6.7 | -6.5 | -6.2 |
| General government overall balance | -6.4 | -7.5 | -12.8 | -10.0 | -9.9 | -9.0 |
| General government debt 4/ | 70.4 | 75.1 | 89.2 | 84.2 | 83.5 | 83.9 |
| Cyclically adjusted balance (% of potential GDP) | -6.8 | -7.4 | -8.7 | -8.3 | -8.5 | -8.3 |
| Cyclically adjusted primary balance (% of potential GDP) | -2.0 | -2.6 | -3.8 | -3.3 | -3.2 | -2.7 |
| Money and credit (y/y percent change, end-period) | ||||||
| Broad money | 10.5 | 8.9 | 12.2 | 8.8 | 8.9 | 9.0 |
| Domestic Credit | 11.8 | 8.3 | 9.5 | 9.0 | 13.6 | 11.4 |
| Financial indicators (percent, end-period) | ||||||
| 91-day treasury bill yield (end-period) | 6.1 | 4.4 | 3.3 | 3.8 | … | … |
| 10-year government bond yield (end-period) | 7.4 | 6.1 | 6.2 | 6.8 | … | … |
| Stock market (y/y percent change, end-period) | 17.3 | -23.8 | 68.0 | 18.3 | … | … |
| External trade (on balance of payments basis) | ||||||
| Merchandise exports (in billions of U.S. dollars) | 337.2 | 320.4 | 296.3 | 429.2 | 450.3 | 462.8 |
| (Annual percent change) | 9.1 | -5.0 | -7.5 | 44.8 | 4.9 | 2.8 |
| Merchandise imports (in billions of U.S. dollars) | 517.5 | 477.9 | 398.5 | 618.6 | 737.7 | 769.6 |
| (Annual percent change) | 10.3 | -7.6 | -16.6 | 55.3 | 19.2 | 4.3 |
| Terms of trade (G&S, annual percent change) | -1.8 | 1.5 | 1.6 | -8.1 | -2.8 | 2.2 |
| Balance of payments (in billions of U.S. dollars) | ||||||
| Current account balance | -57.2 | -24.5 | 24.0 | -38.7 | -118.3 | -109.7 |
| (In percent of GDP) | -2.1 | -0.9 | 0.9 | -1.2 | -3.5 | -2.9 |
| Foreign direct investment, net (“-” signifies inflow) | -30.7 | -43.0 | -44.0 | -38.6 | -47.7 | -52.6 |
| Portfolio investment, net (equity and debt, “-” = inflow) | 2.4 | -1.4 | -36.1 | 16.8 | -8.2 | -18.0 |
| Overall balance (“+” signifies balance of payments surplus) | -3.3 | 59.5 | 87.3 | 47.5 | -20.1 | 17.8 |
| External indicators | ||||||
| Gross reserves (in billions of U.S. dollars, end-period) | 412.9 | 477.8 | 577.0 | 607.3 | 540.5 | 558.3 |
| (In months of next year’s imports (goods and services)) | 8.2 | 11.1 | 9.0 | 7.9 | 6.7 | 6.5 |
| External debt (in billions of U.S. dollars, end-period) | 543.1 | 558.4 | 573.7 | 619.6 | 669.1 | 742.5 |
| External debt (percent of GDP, end-period) | 20.1 | 19.7 | 21.5 | 19.5 | 19.6 | 19.8 |
| Of which: Short-term debt | 8.7 | 8.4 | 8.8 | 8.6 | 8.6 | 8.9 |
| Ratio of gross reserves to short-term debt (end-period) | 1.8 | 2.0 | 2.4 | 2.2 | 1.8 | 1.7 |
| Real effective exchange rate (annual avg. percent change) | -4.7 | 3.0 | -0.9 | 0.3 | … | … |
| Exchange rate (rupee/U.S. dollar, end-period) | 69.2 | 75.4 | 73.5 | 75.8 | … | … |
| Memorandum item (in percent of GDP) | ||||||
| Fiscal balance under authorities’ definition | -3.4 | -4.7 | -9.2 | -6.7 | -6.4 | -6.2 |
Data are for April–March fiscal years.
Differs from official data, calculated with gross investment and current account. Gross investment includes errors and omissions.
Divestment and license auction proceeds treated as below-the-line financing.
Includes combined domestic liabilities of the center and the states, and external debt at year-end exchange rates.
India: Selected Economic and Financial Indicators, 2018/19-2023/24 1/
| 2018/19 | 2019/20 | 2020/21 | 2021/22 | 2022/23 | 2023/24 | |
| Est. | Projections | |||||
| Growth (in percent) | ||||||
| Real GDP (at market prices) | 6.5 | 3.7 | -6.6 | 8.7 | 6.8 | 6.1 |
| Prices (percent change, period average) | ||||||
| Consumer prices - Combined | 3.4 | 4.8 | 6.2 | 5.5 | 6.9 | 5.1 |
| Saving and investment (percent of GDP) | ||||||
| Gross saving 2/ | 30.2 | 29.4 | 28.8 | 30.0 | 29.4 | 30.1 |
| Gross investment 2/ | 32.3 | 30.2 | 27.9 | 31.2 | 32.8 | 33.0 |
| Fiscal position (percent of GDP) 3/ | ||||||
| Central government overall balance | -3.9 | -4.8 | -8.6 | -6.7 | -6.5 | -6.2 |
| General government overall balance | -6.4 | -7.5 | -12.8 | -10.0 | -9.9 | -9.0 |
| General government debt 4/ | 70.4 | 75.1 | 89.2 | 84.2 | 83.5 | 83.9 |
| Cyclically adjusted balance (% of potential GDP) | -6.8 | -7.4 | -8.7 | -8.3 | -8.5 | -8.3 |
| Cyclically adjusted primary balance (% of potential GDP) | -2.0 | -2.6 | -3.8 | -3.3 | -3.2 | -2.7 |
| Money and credit (y/y percent change, end-period) | ||||||
| Broad money | 10.5 | 8.9 | 12.2 | 8.8 | 8.9 | 9.0 |
| Domestic Credit | 11.8 | 8.3 | 9.5 | 9.0 | 13.6 | 11.4 |
| Financial indicators (percent, end-period) | ||||||
| 91-day treasury bill yield (end-period) | 6.1 | 4.4 | 3.3 | 3.8 | … | … |
| 10-year government bond yield (end-period) | 7.4 | 6.1 | 6.2 | 6.8 | … | … |
| Stock market (y/y percent change, end-period) | 17.3 | -23.8 | 68.0 | 18.3 | … | … |
| External trade (on balance of payments basis) | ||||||
| Merchandise exports (in billions of U.S. dollars) | 337.2 | 320.4 | 296.3 | 429.2 | 450.3 | 462.8 |
| (Annual percent change) | 9.1 | -5.0 | -7.5 | 44.8 | 4.9 | 2.8 |
| Merchandise imports (in billions of U.S. dollars) | 517.5 | 477.9 | 398.5 | 618.6 | 737.7 | 769.6 |
| (Annual percent change) | 10.3 | -7.6 | -16.6 | 55.3 | 19.2 | 4.3 |
| Terms of trade (G&S, annual percent change) | -1.8 | 1.5 | 1.6 | -8.1 | -2.8 | 2.2 |
| Balance of payments (in billions of U.S. dollars) | ||||||
| Current account balance | -57.2 | -24.5 | 24.0 | -38.7 | -118.3 | -109.7 |
| (In percent of GDP) | -2.1 | -0.9 | 0.9 | -1.2 | -3.5 | -2.9 |
| Foreign direct investment, net (“-” signifies inflow) | -30.7 | -43.0 | -44.0 | -38.6 | -47.7 | -52.6 |
| Portfolio investment, net (equity and debt, “-” = inflow) | 2.4 | -1.4 | -36.1 | 16.8 | -8.2 | -18.0 |
| Overall balance (“+” signifies balance of payments surplus) | -3.3 | 59.5 | 87.3 | 47.5 | -20.1 | 17.8 |
| External indicators | ||||||
| Gross reserves (in billions of U.S. dollars, end-period) | 412.9 | 477.8 | 577.0 | 607.3 | 540.5 | 558.3 |
| (In months of next year’s imports (goods and services)) | 8.2 | 11.1 | 9.0 | 7.9 | 6.7 | 6.5 |
| External debt (in billions of U.S. dollars, end-period) | 543.1 | 558.4 | 573.7 | 619.6 | 669.1 | 742.5 |
| External debt (percent of GDP, end-period) | 20.1 | 19.7 | 21.5 | 19.5 | 19.6 | 19.8 |
| Of which: Short-term debt | 8.7 | 8.4 | 8.8 | 8.6 | 8.6 | 8.9 |
| Ratio of gross reserves to short-term debt (end-period) | 1.8 | 2.0 | 2.4 | 2.2 | 1.8 | 1.7 |
| Real effective exchange rate (annual avg. percent change) | -4.7 | 3.0 | -0.9 | 0.3 | … | … |
| Exchange rate (rupee/U.S. dollar, end-period) | 69.2 | 75.4 | 73.5 | 75.8 | … | … |
| Memorandum item (in percent of GDP) | ||||||
| Fiscal balance under authorities’ definition | -3.4 | -4.7 | -9.2 | -6.7 | -6.4 | -6.2 |
Data are for April–March fiscal years.
Differs from official data, calculated with gross investment and current account. Gross investment includes errors and omissions.
Divestment and license auction proceeds treated as below-the-line financing.
Includes combined domestic liabilities of the center and the states, and external debt at year-end exchange rates.
Title Page
INDIA
STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION
November 4, 2022
KEY ISSUES
Context. The economy has rebounded from the pandemic-related downturn but is facing new headwinds. The authorities have responded with fiscal policy measures to support vulnerable groups and to mitigate the economic impact of commodity price increases, as well as with front-loaded monetary policy tightening to address elevated inflation. A world class public digital infrastructure is facilitating innovation, productivity improvements and access to services. Further structural reforms, including to address the adverse impact of climate change, are needed to secure strong and sustainable growth.
Policy Recommendations.
Fiscal policy to ensure medium-term sustainability. The additional support to vulnerable groups this year is warranted but, with fiscal space at risk, policies should focus on a credible and clearly communicated consolidation, anchored on stronger revenue mobilization and spending efficiency. Further improvements in public financial management, fiscal institutions and transparency would help. India’s digitalization success can be harnessed to better target government services.
Monetary policy tightening. Inflation pressures have led to an appropriate shift towards policy tightening. Additional tightening should be carefully calibrated and communicated. The exchange rate should act as the main shock absorber, with intervention limited to addressing disorderly market conditions.
Financial sector policies to maintain financial stability and support growth. Financial sector policies should continue to facilitate the exit of non-viable firms and encourage banks to build capital buffers and recognize problem loans. Prudential tools could help address risks stemming from tightening in financial conditions. Reforms to strengthen governance and reduce the government’s footprint are needed to support strong medium-term growth.
Structural reforms for resilient, green and inclusive growth. India is making important progress in implementing its climate agenda. Additional efforts, as well as financing and technology transfer, are needed to move to a carbon-neutral economy. The pandemic has highlighted the need to strengthen health, education and social spending, and narrowing the digital divide through improved digital access and literacy. Improving productivity, strengthening governance, and furthering trade liberalization would help medium-term growth.
Approved By
Anne-Marie Gulde-Wolf (APD) and Anna Ilyina (SPR)
The Article IV mission took place September 12-27, 2022. The team comprised N. Choueiri (Head), D. Prihardini, J. Spray, J. Turunen, T. Xu (all APD), M. Casiraghi (MCM), M. Gorbanyov (SPR), S. Kotera (OAP) and L. Breuer (Senior Resident Representative). S. Mohapatra and G. Dang assisted the mission. S. Bhalla and S. Dash also participated in some mission meetings. The mission met with the Economic Affairs Secretary A. Seth, Chief Economic Advisor A. Nageswaran, Reserve Bank of India (RBI) Deputy Governors M. D. Patra and T. R. Sankar, and other senior government and RBI officials, along with representatives from the private sector. M. Conde Panesso and A. Goel (APD) assisted in the preparation of this report.
Contents
BROAD-BASED ECONOMIC RECOVERY IS UNDERWAY
HEADWINDS WEIGH ON THE ECONOMIC OUTLOOK
FISCAL POLICY TO ENSURE MEDIUM-TERM SUSTAINABILITY
MONETARY POLICY TIGHTENING
FINANCIAL SECTOR POLICIES TO MAINTAIN STABILITY
STRUCTURAL REFORMS FOR A GREEN AND INCLUSIVE RECOVERY
OTHER ISSUES
STAFF APPRAISAL
BOXES
1. Unleashing India’s Growth Potential
2. Financial Sector and Economic Growth in India
3. Digitalization and GovTech
4. India’s Transition to a Carbon-Neutral Economy
FIGURES
1. Labor Market Developments
2. India’s Green House Gas Emissions
3. Recent Macroeconomic Developments
4. External Sector Developments
5. Financial Markets Developments
6. Monetary Sector Developments
7. Fiscal Sector Developments
8. Corporate and Banking Sector Developments
TABLES
1. Selected Social and Economic Indicators, 2018/19-2023/24
2. Balance of Payments, 2018/19-2023/24
3. Reserve Money and Monetary Survey, 2018/19-August 2022/23
4. Central Government Operations, 2018/19-2023/24
5. General Government Operations, 2018/19-2023/24
6. Macroeconomic Framework, 2018/19-2027/28
7. Indicators of External Vulnerability, 2018/19-2021/22
8. Financial Soundness Indicators, 2018/19-2021/22
9. High Frequency Economic Activity Indicators
APPENDICES
I. External Sector Assessment
II. Risk Assessment Matrix
III. Debt Sustainability Analysis
IV. Recent and Planned Capacity Development
V. Uptake of Previous IMF Advice
VI. Options for Central Bank Digital Currency for India
VII. Inequality and Poverty in India: Impact of the Pandemic and Policy Response
VIII. Evolution of India’s Trade Policy
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
