India Has to Liberalise Trade, Improve Labour Laws and Business Environment: IMF

Chennai: According to the IMF, India should liberalize trade, make labor laws more flexible and improve the business environment for the private sector to unlock its full potential to grow, achieve higher growth to meet targets and compete with China.

India’s fundamentals are quite strong, growth is good, inflation is falling and the fiscal deficit is well managed. While the tariffs are a big shock to the region, there are a lot of things working in India’s favour.

There are some headwinds and some headwinds in India, which grew at 6.6 percent this year. The headwinds come from tariffs, but because of the tailwinds, the first quarter was much better than most people expected, at 7.8 percent. The GST reforms also provide some replenishment of consumption.

“If India has to grow at the pace that you are talking about becoming Viksit Bharat by 2047, India needs to fire on all cylinders, strengthen domestic demand, strengthen integration within India,” said Krishna Srinivasan, Director of IMF Asia and Pacific Department.

If India wants to grow and compete with China, it must liberalize trade and make labor laws much more flexible so that India can grow. This is a big problem. A lot needs to be done to improve the business environment. “There are many regulations that prevent the private sector from unlocking its full potential,” he said.

India needs to work towards becoming more integrated into global supply chains to meet both external and domestic demand. India has signed free trade agreements with the UK and is pursuing agreements with the European Union and Australia. “These are all the right things because you also want to diversify your export markets so that during any shock in a particular country there are other ways to diversify that,” he added.

But beyond that, there are structural reforms, deep structural reforms that are required for India to grow at 8 percent. These structural reforms are fundamental. The macro policy framework is good for now, but these deeper reforms are needed to achieve the goals.