Ahead of Budget, IMF calls for more reforms

Ahead of the Budget the International Monetary Fund's(IMF) top representative Andreas Bauer in India spoke exclusively to our correspondent Siddhant Sibal. 
Bauer lauded the various reforms in India especially the GST and said that the country has done well and the world needs it to grow. He hoped for fiscal consolidation in the upcoming Budget. Here is the full interview. 

WION: The IMF report was upbeat on India. What makes you so confident? 

Andreas Bauer: We think India has a strong base to grow on. It has a young population, it has human resources that are growing, it has a fairly high savings rate, although we would see some more of that will provide the basis for investment.

India has a good basis to start growing. We need reforms. This is why we looking in Budgets, programmes of the new government. We want to see continues pace of reforms, some important reforms have been implemented in recent years. 

WION: Your assessment of reforms introduced by the government in the last few years? 

Andreas Bauer: India has made a lot of progress in a few years and GST for us is a big reform. It has the potential to unify the domestic market, certainty, the initial structure of GST was quite complex and compliance cost very high.

We have seen good moves to simplify that. More scope to go further. But reforms give a tailwind to move the economy forward. Looking at the next phase, after the elections that India can pick up the reform pace and continue to build the economic pace that allows country to grow at these high rates.

India has done well, India is growing above 7 per cent, the country is 15 per cent of global growth and world needs India to grow as there are other economies like China which are slowing, so we do need India to grow. 

WION: What kind of reforms you expect? 

Andreas Bauer: We have laid reforms out in our annual assessment of the economy. In short term, we are looking at a number of things. We are looking at ways to address twin balance sheet problem.

So improving capital base of banks, which is ongoing for public banks and governance reforms of the banks and making sure these banks in future work on much better basis and we don't see repeat of accumulation of large non-performing loans. One of the issues, we have discussed is the global environment might become challenging. Important to put fiscal on a strong footing. 

WION: Your suggestions on the Budget? 

Andreas Bauer: I rather wait for the Budget to see what is in there but we have been for sometimes saying that India should gradually consolidate. So certainly we want India to persist on that path.

See the deficits to decline and debt levels to decline. These are relatively high levels for an emerging economy and we want to have a space that when a negative shock comes, fisc can help. We would like to see the continuation of the consolidation path. It is important to take a global view and create fiscal space to be ready in case if negative shock. 

WION: Your assessment of oil prices especially with the crisis in Venezuela?

Andreas Bauer: Geopolitical events always pose risk to oil price. The general expectation is after the recent decline oil prices, they will remain at the current level so that is not bad news for oil importers like India.

Risk of supply disruption as we saw last year. So risk as well on that front. In general, given that global economy is slowing and given that previous supply disruptions have been addressed, so our forecast and markets forecast is stable oil prices. 

WION: You have painted a gloomy picture of the world economy. What makes you pessimistic? 

Andreas Bauer: The good news is the global economy is still expanding but expansion is slowing and at a faster pace than originally then we anticipated. So we put out a word of caution. The global economy last year expanded by 3.7 per cent, that is quite a good pace.

For the current year, growth will slow down to 3.5 per cent and that refects in both advanced and emerging markets. The key message to countries is, the situation is still okay, but risk remains and better prepare for a more difficult external environment.