In its annual country report, the International Monetary Fund (IMF) has stated that India will be the source of global economic growth for the next few decades. The IMF sees the implementation of the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC) as some of the major structural reforms implemented by the Indian government in the recent days.
The report also suggested that India takes steps towards structural reforms by incorporating a tighter monetary policy and a simpler GST rate structure in the future.
IMF’s mission chief for India, Ranil Salgado, stated that India now contributes to nearly 15% of the global economic growth in terms of purchasing power parity. Also, India has at least three decades before the working age of the population starts to decline. This is considered to be the main reason why India can be considered as the source of global growth for the next few decades.
The report noted that India is recovering well from the shocks witnessed in 2016 and 2017 due to demonetisation and GST. Though there are certain short-term issues associated with GST implementation, IMF is of the view that India has a lot to gain from the structural reforms of GST in the long run. The implementation of IBC is viewed as another big achievement that could reform the banking sector.
When it comes to GST implementation, the report argued that India could preserve its revenue neutrality by adopting a simpler structure. It suggested further reforms through the incorporation of a dual rate system that has a low standard rate for most items and an additional higher rate for select items.
The report also suggested that the Reserve Bank of India (RBI) should tighten its monetary policy to control inflation in the country. Increasing oil prices and falling rupee value would cause inflationary pressures in the country’s economy. Despite all this, the high economic activity happening in the formal sector will contribute to economic growth and create better jobs.