Calling India's ongoing Goods and Services Tax reform an “act of courage”, IMF chief Christine Lagarde said she expects “some positive outcome” as a result of the decision. Speaking to reporters during the annual Spring meeting of the International Monetary Fund, and the World Bank in Washington, Lagarde said the GST really means reforming in-depth in each of the Indian States in order to substitute the State taxes with overall federal tax, the re-allocation of it, and the digital platform that supports it.
When asked if she is impressed by the other reforms carried out by the Indian government, she said, “So, I am personally impressed by the work that is being done in that regard and expect some positive outcome. There has been other reforms as well that has been conducted by the Indian authorities courageously. One of them, as a former lawyer I am particularly attentive to because it particularly helps when you have to deal with the corporate sector banking sector that means help, is the bankruptcy reform.”
The 61 year old said, “We are seeing significant development and clear determination to continue and sustain growth going forward. We have slightly revised down our Indian projection as a result of demonetisation that has been announced recently a little bit unexpectedly. Our understanding is that demonetisation has now remedied about 75 per cent. Those are the last figures that we have.” She added, “So clearly the situation is now being mended. And we believe that India is going to continue to grow at a really fast pace. I think, we have 7.2 per cent forecast for 2017.”
Meanwhile, the IMF has stated that the country's growth has been “impressive” in the recent years, making room for tax broadening efforts by the government. Vitor Gasper, director of the IMF Fiscal Affairs Department said, “India has recorded quite an impressive growth performance in recent years. Our view is that the elimination of fuel subsidies and the targeting of social benefits has delivered in terms of allowing the union budget target to be achieved at 3.5 per cent of GDP.” He added, “We have been collaborating with the Indian authorities in terms of looking at fiscal structural measures, including expenditure rationalisation while protecting infrastructure investment, tax broadening efforts. We see room for tax broadening efforts. We see room for more progressive income taxes in line with trends in income inequality. Perhaps more generally, we do see a case for a medium-term framework and we know that the authorities are actively working on it.”
The IMF also raised concerns over China's credit boom which has appeared to have doubled in less than a decade. Calling it “dangerous” for the world's second-largest economy, Tobian Adrian, Financial Counsellor and Director, IMF Monetary and Capital Markets Department, said, “China is a key contributor to global growth but also has notable vulnerabilities. Credit in relation to China's economy has more than doubled in less than a decade, to over 200 per cent. Credit booms this big can be dangerous.”
