NEW DELHI: The International Monetary Fund (IMF) has urged India to introduce policies to reduce labour and product market rigidities as well as minimise the impact of global economic uncertainty as it projects the external environment to be less supportive going forward than in the past.
In its World Economic Outlook 2017 report released on Tuesday, the IMF has suggested that India focus on reducing labour and product market rigidities. It should also ease firm entry and exit system, expand the manufacturing base, and gainfully employ the abundant pool of labour, the report noted.
“Labour and land reforms are inevitable for manufacturing to grow. India cannot survive just on services sector growth,” says Seema Sharma, associate professor – economics and statistical analysis at Indian Institute of Technology, Delhi.
Weaker potential output growth across advanced economies, together with a possible increase in trade barriers in some could translate into generally subdued demand growth for emerging market and developing economies, suggests the report.
Policy actions by the Indian government should also consolidate the disinflation under way. Since the collapse in commodity prices through agricultural sector reforms and infrastructure enhancements will ease supply bottlenecks and boost financials, the report states.
“Currently, there is a lack of execution unlike in the past where policy was absent. But, labour reforms are required immediately… Policy makers should understand that. Labour is wealth and not just any other product,” said Aman Agarwal, economist, Indian Institute of Finance adding that IMF’s cautions need to be taken seriously by the policy makers.
The Outlook states that India’s economy has grown at a strong pace in recent years owing to the implementation of critical structural reforms, favourable terms of trade, and lower external vulnerabilities. “However, beyond the challenge of replacing currency in circulation following the November 2016 currency exchange initiative, India requires stability,” states the report.