'Exchange rate flexibility is a key shock absorber for India'
- IMF directors agree that India's exchange rate flexibility should be the primary defence against external shocks, with foreign exchange interventions.
- The IMF has reclassified India's de facto exchange rate regime to a "stabilised arrangement" from "floating" for December 2022 to October 2023.
Key Points
- There is a divergence of views between the authorities and IMF staff regarding the exchange rate stability.
India's Economic Overview
- India's foreign exchange reserves reached $606.8 billion, reflecting increased capital inflows.
- The IMF's Article IV consultation with India concludes that the economy has shown robust growth, with employment surpassing pre-pandemic levels.
- The formalisation of the economy has progressed, and the financial sector remains strong and largely unaffected by global financial stress in early 2023.
Current Account Deficit and Fiscal Concerns
- The current account deficit for FY 2022-23 widened due to post-pandemic recovery and external shocks.
- The budget deficit has eased, public debt remains elevated, and fiscal buffers need rebuilding.
Economic Projections and Monetary Policy
- Growth is expected to remain strong, with real GDP projected to grow at 6.3% in FY24 and FY25.
Structural Reforms and Inclusive Growth
- Comprehensive structural reforms are suggested to leverage India's favourable demographics, promoting job-rich, inclusive, and greener growth.
Prelims Takeaway
- International Monetary Fund
- Reserve Bank of India