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India has scope for cutting food, fertiliser subsidies: IMF

India has scope for cutting food, fertiliser subsidies: IMF
Highlights

International Monetary Fund has also favoured bolstering the level of capitalisation of some banks, particularly government-owned banks

Washington: There is a lot of scope in India for reducing untargeted food and fertiliser subsidies and enhancing revenue administration, the IMF has said.

"When one looks at some of the populist proposals announced by political parties during this election season, the important thing is to look at the benefits but also look at the costs and to look at the details," Paolo Mauro, Deputy Director, the International Monetary Fund's Fiscal Affairs Department, told reporters at a news conference here on Wednesday.

"Certainly, when one looks at the case of India, there is a lot of scope for reducing untargeted food and fertilizer subsidies, and for enhancing revenue administration, including for the GST, which was a transformational positive reform.

But, again, even there, improved tax compliance would be a priority," Mauro said.

Responding to a question on announcements made by political parties during this election season, Mauro said in India's case, the priority continues to be gradual fiscal consolidation because the gross general government to Gross Domestic Product (GDP) ratio is at about 70 per cent.

"You also have a very rapid growth rate. The economy is growing in excess of 7 per cent, and the objective there is to make sure that that growth is inclusive, and it filters down to poverty reduction," he said.

"On the schemes, therefore, ultimately what matters is the combined distributional impact of the transfer policies and also of the taxes that would finance them. So, one has to look at the whole package together to assess the distributional impact," Mauro said.

Meanwhile, noting that the level of non-performing loans in India remains high, the International Monetary Fund has favoured bolstering the level of capitalisation of some banks, particularly government-owned banks.

Anna Ilyina, division chief of IMF Monetary and Capital Markets Department, said on Wednesday that bolstering the level of capitalisation was one of the recommendations of the Financial Sector Assessment Programme (FSAP) for India.

"The level of non-performing loans (NPLs) in India remains high. And the level of the capitalization of some banks, particularly government-owned banks, should be bolstered," said Ilyina.

"There were some steps that were taken by the authorities to boost capital buffers in banks and also to improve governance in state-owned banks that have had some positive impact," Ilyina said.

The institutional mechanisms for resolution and the recognition of NPLs are, of course, an extremely important part of the process of cleaning up the banking system of non-performing loans, she said adding that the authorities should continue working along these lines.

Tobias Adrian, Financial Counsellor and Director, Monetary and Capital Markets Department of the IMF, said that there continues to be a high stock of Non-performing Assets in India.

"There has been some progression, but we would welcome further progress on the non-performing assets in India," he said responding to a question on Indian banking system.

The Indian government in February said bad loans fell by Rs 31,168 crore in April-December 2018-19 compared to NPAs worth Rs 8,95,601 crore at March-end 2018.

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