‘India doing well, but challenges ahead'

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Washington, October 20:: India's recent economic performance has been impressive but it needs to reduce its high public debt and undertake structural reforms to further deregulate its economy to have a sustainable and more broad-based growth, a senior IMF official has said.

"...India has done remarkably well in recent years. But it faces a number of challenges. It has still high public debt, although it's made impressive progress in reducing its fiscal deficit in the last few years. It's recently been facing some inflation pressures, although they've taken steps to tighten monetary policy and those appear to have been reasonably effective so far," IMF Director Asia Pacific Department, David Burton said.

"And of course, above all, there's a range of structural reforms that India needs to take to further deregulate and open its economy so that it can have more broad-based growth, particularly in the manufacturing sector going forward, to drive growth and to drive the employment creation that it will need, particularly with its relatively young population and the need to provide jobs for new entrants in the labour force."

The economic performances of the two Asian giants, India and China, have generated a lot of optimism but one needs to bear in mind the "difficult challenges" that may make their growth unsustainable, Burton said at a briefing while discussing the Outlook for the Asia Pacific.

"... one can be optimistic about China and India. Both represent remarkable success stories, China's going back a long way. I think the increase in India's growth to high levels is more recent, but nonetheless impressive. That's not to say that both economies don't face a number of difficult challenges going forward if they're to sustain this performance".

On why is it that China and India are so crucial to driving economic growth at the moment, he said that all world economic outlook numbers are calculated on Purchasing Power Parity (PPP) and the GDPs of the two countries in terms of PPP are very high.

"...The simple answer is that they're both large economies and they're both growing very fast. And I should point out that all our world economic outlook numbers are done on a PPP basis, so that global growth, and contributions to global growth, are calculated using PPP weights, not market exchange weight rates," he said.

"China has become, over the years, a very open economy on the trade side. Which means it's very much engaged with the rest of the world and the rest of the region. And that means that its economic performance has an important impact on global economic growth" Burton added.

"And India, too, though it's historically been more closed than China, has been opening up. And it is having a greater impact than it used to through trade channels, although it remains somewhat less open than China" he added.