IMF has said that India’s high growth rate in recent years did not lead to a matching increase in formal sector jobs and labour market participation has declined.The IMF’s report on its annual consultations with India released in Washington on Monday said that while India has lifted millions out of poverty as one of the world’s fastest-growing economies, “recent labour market data suggests that unemployment is high while labour force participation has decreased, particularly for females.”
“Without more inclusive and sustainable growth, India’s potential demographic dividend over the next few decades, from its young and rapidly-growing labour force, could be wasted,” the report warned.
The report pinned the slowing growth of the Indian economy on the deceleration of consumption and investment that was made worse by regulatory uncertainty.
It said the relatively low food prices contributed to “rural distress”.
Briefing reporters, the IMF Mission Chief for India, Ranil Salgado, said that other contributing factors included the “abrupt reduction in non-bank financial companies’ (NBFC) credit expansion and the associated broad-based tightening of credit conditions'” and some issues with implementing “important and appropriate structural reforms, such as the nation-wide goods and services tax (GST).”
He said that India is now in the midst of a significant economic slowdown and the IMF was revising downwards the growth projections it had made of 6.1 per cent for the current year and 7 per cent for the next year.
On a positive note, the IMF report said, “Over the medium term, growth is projected to gradually rise to its medium-term potential of 7.3 per cent” helped by a firming in investment and private consumption in the second half of the fiscal year.
“This is expected to be supported by the lagged effects of monetary policy easing, recent measures to facilitate monetary policy transmission and address corporate and environmental regulatory uncertainty, and government programs to support rural consumption being rolled out,” it said.
The report said that the other contributing factors to an improvement would include “continued commitment to inflation targeting, gradual macro-financial and structural reforms, including implementation of reforms initiated earlier, such as the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC), as well as ongoing steps to liberalise FDI (foreign direct investment) flows and further improve the ease of doing business.”
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