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Wednesday, 15 August, 2001, 09:47 GMT 10:47 UK
IMF downbeat on India
Protest against the Prime Minister Atal Behari Vajpayee
Unions and farmers oppose the IMF restructuring plans
The economic outlook for India is weakening and the government must make budget changes to achieve sustainable growth, the International Monetary Fund has warned in a report.

In its annual assessment of the Indian economy, the IMF painted a bleak picture, warning that the near-term forecast for the country was becoming less favourable.

"The critical priority in the period ahead remained to place the fiscal position on a sustainable path," the report said.

The IMF blamed fiscal policies as a key factor in undermining the potential of the Indian economy.

"In addition to external shocks, there were continued signs that domestic structural constraints and the fiscal situation were adversely affecting investment and the economy's underlying potential," the report said.

The IMF treatment

To reverse the recent declines in economic growth, the Fund recommended budgetary cutbacks and a broad restructuring of the economy to encourage foreign investment.

Two key areas that the Fund claims India needs to speed up are the privatisation of government enterprises and liberalisation of labour laws.

India's trade unions and farmers have been highly critical of the IMF's policies and have tried to persuade the government to resist adopting them.

The IMF welcomed the steps taken in the current budget towards rationalising expenditure but called for cuts to industry subsidies and improvements to poverty reduction programmes.

The Reserve Bank of India's monetary policy and the rupee's valuation were described as appropriate, though it predicted the currency might need adjustment downward in the near-term.

In this context, the IMF said that while central bank intervention in the currency markets had helped the economy, it suggests that market forces "be given freer play" to determine the level of the exchange rate.

India reassurance

Even as international agencies criticised India, prime minister Atal Behari Vajpayee sought to reassure people in an Independence Day address that the economy was on track.

"The prime minister took this opportunity to allay fears," Alok Mukherjee, chief economics correspondent at the Hindu newspaper, told BBC's World Business Report.

The prime minister's view is that the slowdown "is not something limited to India, it is a global phenomonen and there would be an upswing very soon," Mr Mukherjee added.

He added: "To that extent he is trying to instill some confidence in people (that) there is no reason to be unduly worried about the slowdown."

Alok Mukherjee from the Hindu newspaper
"The prime minister sought to allay fears"
See also:

01 Aug 01 | South Asia
Allies rally round Vajpayee
01 Aug 01 | Business
India's investors hold tight
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