India's fiscal stance sensible, says IMF chief Christine Lagarde

Terming the India’s fiscal stance as ‘appropriate and sensible’, the International Monetary Fund (IMF) said that investments in major infrastructure projects are right way to stimulate the economy.

“We consider that the fiscal stance adopted by India is exactly appropriate and a very sensible objective that has been set. It’s just the right one that has been set under the given circumstances,” IMF chief Christine Lagarde told reporters.

Finance Minister Arun Jaitley has in his Budget for 2016-17 stuck with the roadmap to narrow the fiscal deficit to 3.5 per cent of gross domestic product (GPD) in the next financial year while raising public investment and focusing on distressed farm economy and infrastructure.

“We also highly value the investments being made into major infrastructure projects because we believe it is the right way to stimulate short-term growth,” Lagarde said.

Such investment could be called short-term stimulus and will improve medium to longer-term productivity in the country, she said.

This also “means trying to eliminate as many bottlenecks as possible and reap the benefits of agriculture, manufacturing taking place in various parts of this very large and beautiful country. So their fiscal stance is right,” she said.

India being a net importer of oil and gas, it is using windfall from low energy cost to finance infrastructure projects, which is a right stance from IMF perspective.

With a solid business model and a population that is also growing, there is no obstacle to growth at the moment, she said.

“My message to you is that there is the potential for growth, there is a growing population, there is scale of markets, there is a determination to reform, there are technological breakthroughs and there is creativity in an economy that is clearly on a road to growth,” she said.

While India is a net beneficiary of low oil prices, the only downside risk it faces is from asynchronous monetary policies and the spillover impact it could have.

“I think that clearly, India is mindful of preparing for that and is very attentive to its fundamentals in order to be able to resist that,” she said.

Minister of State for Finance Jayant Sinha, who along with Lagarde addressed press after three-day Advancing Asia Conference, said it is India’s turn now.

India has similar potential like that of the US and China to be able to sustain high growth rates for a long period of time, he said.

“Now, we are still in a GDP per capita which is quite low. So we have a lot of headroom in terms of GDP per capita growth and because of the reform to transform approach that our government has taken, we have the right domestic policies in place to be able to sustain this level of growth for a long period of time,” he said.