The world needs India to grow as China slows: IMF

Ahead of the Budget, Andreas Bauer, the International Monetary Fund's (IMF) top representative in India, spoke lauded the Indian reforms, especially goods and services tax, saying India has done well and the world needs India to grow. In an interview with Sidhant Sibal of Wion, he hoped for a fiscal consolidation in the upcoming Budget.

The IMF report was upbeat on India. What makes you so confident?

We think India has a strong base to grow on. It has a young population, it has human resources that are growing, it has fairly high savings rate, although we would see some more of that will provide a basis for investment. India has a good basis to start growing. We need reforms. This is why we are looking at budgets, programmes of the new government. We want to see continuous pace of reforms.

What is your assessment of reforms introduced by the government in the last few years?

India has made a lot of progress in the last few years and GST is a big reform. It has the potential to unify the domestic market. Certainly, the initial structure of GST was quite complex and compliance cost very high. We have seen good moves to simplify that and there is more scope to go further. But reforms give tailwind to move the economy forward. Looking at the next phase, after the elections, India can pick up the reforms pace, and continue to grow at high rates. The world needs India to grow as there are other economies such as China which are slowing.

What kind of reforms do you expect?

We have laid reforms out in our annual assessment of the economy. In the short term, we are looking at a number of things. We are looking at ways to address the twin balance-sheet problem. So improving capital base of banks, which is ongoing for public banks and governance reforms of the banks and making sure these banks in future work on much better basis, and we don't see repeat of accumulation of large non performing loans. One of the issues we have discussed is that the global environment might become challenging. Important to put fiscal on a strong footing.

Your suggestions on the budget?

I rather wait for the Budget to see what is there in, but we have been saying for some time that India should gradually consolidate. So certainly we want India to persist on that path and see the deficits and debt levels declining. These are relatively high levels for an emerging economy and we want have a space that when a negative shock comes, the fisc can help. We would like to see the continuation of consolidation path. It's important to take a global view and create a fiscal space to be ready in case if negative shock.

Your assessment of oil prices, especially with crisis in Venezuela...

The geopolitical events always pose a risk to oil prices. General expectations is after the recent decline in oil prices, they will remain at the current level so that is not a bad news for oil importers like India. There is a risk of supply disruption as we saw last year. In general, given that the global economy is slowing and given the previous supply disruptions have been addressed, our forecast and market forecast is stable oil prices.

You have painted a gloomy picture of the world economy. What makes you pessimistic?

The good news is that the global economy is still expanding, but the expansion is slowing and at a faster pace than originally than we anticipated. So we put out a word of caution. The global economy last year expanded by 3.7%, that is quite a good pace. For the current year, the growth will slow down to 3.5%, and that reflects in both advanced and emerging markets. The key message to countries is, the situation is still okay, but risks remain. Better prepare for a more difficult external environment.