IMF Executive Urges More India Reform
09/18/2012| 04:25am US/Eastern
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NEW DELHI--India should continue to liberalize its rules on foreign direct investment and resolve controversial tax issues to improve investor confidence and boost capital inflows, a senior executive at the International Monetary Fund said.
"It's not just the money that comes in, but it's actually all the other spillovers in terms of knowledge and increases in industrial productivity, etc.," Laura Papi, assistant director and head of the IMF mission for India, told Dow Jones Newswires.
In March, India had introduced two highly criticised tax measures--the General Anti Avoidance Rules and a retrospective law amendment to tax foreign deals involving local assets.
The measures hurt capital inflows at that time, forcing the government to postpone the implementation of the GAAR by a year and set up a panel of experts to take another look at the two tax policies.
Sentiment toward India was further hurt after its economy grew at its slackest pace in almost a decade in the first half of 2012. Other major worries include the government's widening fiscal and current-account deficits, and inflation that has remained stubbornly high.
The government last week raised the price of subsidized diesel as part of its efforts to rein in fiscal deficit, and liberalized foreign investment rules in the aviation, retail and broadcasting sectors to boost economic growth. On Monday, Finance Minister P. Chidambaram said the government will soon unveil more policy measures.
The steps are unlikely provide any immediate boost to the economy which grew 5.3% between January and March and 5.5% in the quarter after that.
Ms. Papi said the IMF will lower its 2012 growth target for India in October after the pace of expansion slowed more than expected in the first half and as the slowdown became more broad-based.
In July, the IMF had forecast India's economy to grow 6.1% in 2012. Its next review is scheduled to be released on Oct. 9.
Write to Romit Guha at romit.guha@dowjones.com
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