The director of the IMF Asia Pacific department, Krishna Srinivasan, revealed that India will continue to be the world’s fastest-growing economy, as long as the country’s macroeconomic fundamentals remain strong.
In an interview on Tuesday, he told PTI, “India is expected to remain the fastest-growing economy in the world. We project growth at seven percent in FY24-25, supported by a recovery in rural consumption, as there have been favorable harvests.Inflation is expected to decline to 4.4 per cent in FY24-25, despite some volatility as food prices normalize.”
Regarding other fundamentals, he said, “Despite the elections, fiscal consolidation remains on track. The reserve position is solid. Generally speaking, India’s macroeconomic fundamentals are strong.” He further proposed that after the elections, the country’s reform priorities should focus on three key areas.
“One issue is creating jobs in India. In that context, I believe implementing the labor codes, which were approved in 2019-2020, is important because they will allow labor markets to be more flexible while providing social protection to workers,” he said.
He also highlighted that the country might need to remove certain trade barriers to remain competitive, as liberal trade policies allow productive firms to thrive. “There’s greater competitiveness, and that, by itself, can create jobs. I think it’s important that more trade restrictions are removed,” he added.
He suggested that improving both physical and digital infrastructure would be key reforms, but he also emphasized the need to focus on agricultural and land reforms. “You have to think in terms of strengthening education and skilling,” he said.
Srinivasan also stressed the importance of investing in workforce skilling. “In an economy capable of generating more jobs in the services sector, having the right skills is crucial. So, investing in education and skilling the labor force is very important,” he said.
The IMF director also noted that strengthening the social safety net is another necessary reform.
“Finally, I would say that there’s still a lot of red tape. Improving the business environment will be a crucial aspect. These are some of the reforms I would prioritize,” Srinivasan added.
He explained that red tape refers to bureaucratic rules, regulations, and procedures that often slow down or hinder processes, making it difficult to get things done efficiently. It’s commonly associated with government or organizational procedures.
Srinivasan shared examples of ‘red tape’ in India, pointing out that for some investors, entering the Indian market, establishing investments, or acquiring land for large projects can be challenging. Exiting a venture or shutting it down can also pose difficulties.
“These are just two examples, but I would say that labor market issues, like the labor codes, are still deterrents. These are the types of reforms that need to be addressed moving forward,” he said.
He stated that the unemployment rate fell to 4.9 per cent, as both labor force participation and the employment-to-population ratio have been increasing.
For example, labor market participation is now at 56.4 per cent, while the employment-to-population ratio is around 53.7 per cent, both of which have been on an upward trend since the 1940s. He noted that these trends existed previously, but much of the growth has been seen among self-employed workers.
Srinivasan also indicated that the recent trend of workers in the country “toward the low-productivity agriculture sector” has emerged because “the jobs being generated are not the best of jobs.”
He also voiced concerns about the low female participation in the country’s labor force and the ongoing issue of youth unemployment.
“There are various figures out there, but we can all agree that female labor force participation is on the lower side, and youth unemployment is quite high. Given that, there must be a focus on improving the environment for generating jobs,” he said.