India’s high fiscal deficit a cause for concern, says IMF chief economist Gita Gopinath

International Monetary Fund Chief Economist Gita Gopinath on Monday flagged risks associated with India’s high fiscal deficit. “In the case of India what we flag is the fact that the overall consolidated fiscal deficit remains high and it has been the case for the last five years,” Gopinath said on the sidelines of the World Economic Forum in Davos in Switzerland, Bloomberg reported. India has already exceeded its fiscal deficit target for the 2018-’19 financial year.

Gopinath also told NDTV in an interview that proper implementation of the Goods and Services Tax is still a “work in progress”. “The indirect tax revenues which have come in are weaker than were expected, which is partly a reflection of how it was rolled out and the implementation issues with that and that would continue to have to be fixed,” she said. Part of India’s fiscal deficit problem is the result of poor Goods and Services Tax collections, Gopinath said.

The IMF chief economist added that India’s agricultural sector is facing some “serious stress”. She said that farm loan waivers are not the solution to the problem. “It should not take the form of loan waivers but in the form of cash support, but not necessarily in the form of input subsidies,” she said.

However, Gopinath said that the Indian economy is “quite healthy”, and will grow at 7.5% in 2018-’19. “We revised it [growth forecast] up slightly and that was because of lower commodity prices and the effect that that would have on monetary policy,” she told NDTV.

The IMF chief economist told The Economic Times in an interview that the Goods and Services Tax and the setting up of a bankruptcy code are “very important” accomplishments of the Narendra Modi-led government. “We have seen an improvement in the ease of doing business,” she added.

The IMF also revised the global growth forecast for the financial year downwards from 3.7% to 3.5%. Gopinath said the revision was a mere 0.2%, but conceded that the trade war between the United States and China would affect global growth rates.