‘If government undertakes structural reforms it can achieve 7-8 per cent growth’

The International Monetary Fund’s (IMF) India Mission Chief has said that among emerging markets and BRICS countries, India stands out for accomplishing the sharpest turnaround in its macro economy since the U.S. Federal Reserve started reversing its zero-interest rates monetary policy. As a result, of all these economies, India is best prepared to deal with the Fed’s monetary policy actions.

Earlier this month, the IMF raised its 2014 India growth forecast to 5.6 per cent as against its 5.4 per cent April projection while cutting its world Gross Domestic Product (GDP) growth projection to 3.3 per cent. If the new government follows through with structural reforms India can see a growth of 7 per cent to 8 per cent, IMF India Mission Chief Paul A. Cashin told The Hindu.

“India is the odd man out from the emerging markets and BRICS economies that were being called the Fragile Five last year… But the story for India changed quickly… India is better prepared for shocks today than when the U.S. Fed’s tapering started and more prepared than other emerging markets,” Mr. Cashin said.

The Fed’s initiation of the tapering of its monetary policy triggered sharp volatility in the rupee and a spike in the current account deficit. The CAD is down from the level of 4.7 per cent of the GDP to 1.7 per cent of GDP. “Three percentage points down is a lot... in the IMF’s history there are very few cases of that,” Mr. Cashin said. Substantial dollar inflows have led to India’s foreign exchange reserves rising from $270 billion in August to $315 billion.

The only red flags that Mr. Cashin raised were on retail food inflation and structural reforms in the infrastructure, labour and energy sectors. “Retail food inflation in India has been growing at a 10 per cent plus rate … Few countries have had such problems for such long periods of time,” he said.