International Monetary Fund (IMF) has observed that India’s financial sector remains stable and resilient, as reflected in sustained growth in bank credit, low levels of non-performing assets, and adequate capital and liquidity buffers.
IMF in its India report published on 18th December commended the Reserve Bank of India’s (RBI) proactive monetary policy actions and strong commitment to price stability.
The IMF, has published this report after conclusion of its Board of Directors’ meeting on bilateral discussion with the member country, on it’s financial situation. The meeting was followed by IMF team’s visit to the country, collection of economic and financial information, and discussion with officials over the country’s economic developments and policies.
The Board of Directors of IMF agreed that India’s current neutral monetary policy stance, anchored on a data dependent approach, is appropriate and should gradually bring inflation back to target.
The report observed that India’s economy showed robust growth over the past year. Headline inflation has, on average, moderated although it remains volatile.
Employment has surpassed the pre-pandemic level and, while the informal sector continues to dominate, formalization has progressed.
The financial sector has been resilient—strongest in several years—and largely unaffected by global financial stress in early 2023.
The current account deficit in 2022-23 widened as the post-pandemic recovery of domestic demand and transitory external shocks outweighed the impact of robust services exports and proactive diversification of critical oil imports.
The IMF in its report highlighted that while the budget deficit of the country has eased, public debt remains elevated and fiscal buffers need to be rebuilt. Globally, India’s 2023 G20 presidency has demonstrated the country’s important role in advancing multilateral policy priorities.
It stated that the growth is expected to remain strong, supported by macroeconomic and financial stability.
Real GDP is projected to grow at 6.3 percent in 2023-24 and 2024-25. Inflation is expected to gradually decline to the target although it remains volatile due to food price shocks.
The current account deficit is expected to improve to 1.8 percent of GDP in FY2023-24 as a result of resilient services exports and, to a lesser extent, lower oil import costs.
The international fund agency assessed that going forward, the country’s foundational digital public infrastructure and a strong government infrastructure program will continue to sustain growth.
While acknowledging declining systemic financial risks, IMF Board of Directors broadly called for continued supervision and the use of prudential tools to preserve financial stability and manage emerging vulnerabilities, including rapid growth in unsecured personal loans.
They broadly stressed that recent restrictive trade policies should be phased out and encouraged further liberalizing the FDI regime and improving the investment climate.
