IMF unhappy with FM’s fiscal steps

IMF unhappy with FM’s fiscal steps
CHANDRA SHEKHAR

NEW DELHI, MAR 25: The International Monetary Fund (IMF) is likely to express concern at the fiscal situation in India during its annual article IV consultations scheduled to begin here on Monday. It is learnt that IMF is not convinced by the claim of the Union finance ministry that it has been able to keep the fiscal deficit target within last year’s budgeted limit.

The IMF is also unwilling to accept receipt from disinvestment as a revenue resource. It is concerned about the management of balance of payments too since the country had to mobilise $5 billion last year through India Millennium Deposit. These issues are likely to figure in the discussions between Fund officials and the finance ministry mandarins at their mandatory talks which begin here on Monday.

Article IV consultations is an exercise the Fund undertakes annually. As part of this consultation process, IMF representatives meet senior government officials and make an assessment of the economy. These talks and assessment provide inputs to the Fund’s Spring meeting slated for next month. The IMF team has former finance secretary Vijay Kelkar as one of the members. The last consultation under article IV was in June last.

After a gap of several years, the government has managed to restrict fiscal deficit to the projected level. Not only that, the Budget has outlined a credible plan to contain the deficit in future. Sinha has also announced bold measures to reform sensitive areas like labour, cut in food and fertiliser subsidies, decontrol of the oil sector, downsizing the government besides speeding up the selloff process.With a bold Budget in the background, the government has been fully prepared to showcase its achievements, ranging from modest to good, to the Fund, or for that matter, to any other international agency. Achievements like a robust export growth, reasonably good economic growth, stable exchange rate, and most importantly the return of the feel good factor would have set things right.

Unfortunately, stock market crisis and the Tehelka expose have overshadowed everything and are likely to cast their shadow on the forthcoming talks. Market too are likely to take a beating further with the raids by the income tax department and other legal departments on leading brokers over the weekend. The crisis has raised issues regarding the capability of the regulator to prevent market rigging by a handful of unscrupulous brokers.

However, the Tehekla tapes will provide an input to all international assessments about the country’s economic prospects in the medium-term, as it could really shake the ruling bandwagon. More importantly, with politics taking the front seat now, the biggest casualty will be the economic reforms.