India remains world’s largest growing economy, says IMF

India remains the largest growing economy in the world, a senior official from the International Monetary Fund said, observing that the country’s macroeconomic fundamentals are good.

“India is said to remain the largest growing economy in the world. We project growth at seven per cent in FY24-25, supported by a recovery in rural consumption, as there have been favourable harvests. Inflation is expected to decline to 4.4% in FY24-25, despite some volatility as food prices normalize,” Krishna Srinivasan, Director for the IMF Asia Pacific Department, said in an interview on Tuesday (October 22, 2024).

In terms of other fundamentals, he said, “despite elections, the fiscal consolidation remains on track. Reserve position is pretty good. Macro fundamentals, generally speaking, for India are good”.

He suggested that the country’s reform priorities post-elections need to be in three areas.

“One is, there’s an issue about creating jobs in India and so on. In that context, I think implementing the labour codes, which were approved in 2019-2020, are important because they will allow the labour markets to be flexible while giving social protection to workers,” he said.

“The other thing is, if you want to be competitive, you also have to remove some of the trade restrictions you have right now. Because in India what’s happening is, you know, when you liberalise trade, you allow the productive firms to survive. There’s greater competitiveness and that by itself can, you know, create jobs. I think it’s important that there’s more trade restrictions removed,” he said.

“And finally, I would say continue with the reforms on, you know, beefing up the infrastructure, be it physical infrastructure or digital infrastructure, and this is a key achievement, and it continues with that. But going beyond that, I would say you have to focus on agriculture and land reforms. You have to think in terms of strengthening education and skilling,” he said.

Emphasising the need for investment in the skilling of the workforce, Mr. Srinivasan said “in an economy which can generate a lot more jobs in the services sector, having the right kind of skills is important. So, investing in education, skilling the labour forces is very important”.

“Strengthening a social safety net is another reform. Finally, I would say that talking to people you still have a lot of red tape and so on. Improving the business environment will be important aspects. These are some of the reforms which I think I would prioritise,” Srinivasan said in response to a question.

Sharing some examples of red tape in India, he said, some investors feel that entering the Indian market, setting up an investment some way, getting a tract of land for big investments can be a problem. Some also mentioned that if you want to shut down and you want to exit, that could also be a problem.

“These are just two examples. But I would say that the labour market, you know, the labour codes are still a deterrent. These are the kind of reforms which you need to address going forward,” he said.

Observing that the unemployment rate has declined to 4.9%, he said the labour force participation and the employment-to-population ratio has been increasing.

“For instance, from 56.4% cent for the labour market participation, and employment-to-population (which) is about 53.7%, those have gone up since the 40s. They were there before, he said, adding that most of the improvement has been concentrated in self-employed workers.

Mr. Srinivasan also flagged the recent move of workers in the county “towards the low productivity agriculture sector”, saying the trend has emerged because “the kind of jobs which are being generated are not the best of jobs”.

He also expressed concern over the subdued female participation in the country’s labour force as well as on the prevailing youth unemployment.

“There are various numbers out there, but we will all agree that labour force participation of women is on the lower side, and youth unemployment is quite high. So given that, there has to be emphasis on improving the environment for generating jobs,” he said.