Rising oil prices due to the war in Ukraine have pushed up inflation in India, which needs monetary tightening and measures to address structural weaknesses to improve growth potential, a senior IMF official said.
The country’s economy is expected to grow 8.2% in 2022-23, down 0.8 percentage points, said Anne-Marie Gulde-Wolf, acting director of the IMF’s Asia-Pacific Department.
“While still strong, this is a significant downgrade. We really see political compromise difficult for politicians who support global control of inflation, which has already started to rise,” she told reporters at a news conference here.
“The reason why inflation has increased is really the aftermath of the war in Ukraine, where India is particularly dependent on imports of oil and raw materials,” she said. In the short term, we believe fiscal policy on commodities is appropriate as it supports vulnerable budgets and emphasizes infrastructure investment, the IMF official responded to a question.
He recommended monetary tightening and measures to check for structural weaknesses. “Well-communicated monetary policy action is needed, but it is likely to be tightened,” he added.
“To enhance India’s growth potential, it is important to address the structural weaknesses in the Indian economy that create bottlenecks to more sustainable growth. Those bottlenecks are in the labor market, the housing market, better educational outcomes and, in large part, a higher proportion of women in the workforce,” the IMF official said.
“So overall, the potential definitely exists, but it will require political action,” he said.