The Goods and Services Tax regime to be implemented in India from July 1 will help raise India’s medium-term growth to above eight per cent, the International Monetary Fund said. IMF also said the tax reform will boost growth in the future.
“The government has made significant progress on important economic reforms that will support strong and sustainable growth going forward,” Tao Zhang, Deputy Managing Director of the International Monetary Fund, told PTI in an exclusive interview.
“We expect that the goods and services tax (GST), which is targeted to be applied starting in July, will help raise India’s medium-term growth to above 8 per cent, as it will enhance production and the movement of goods and services across Indian states,” said Zhang.
“We are extremely impressed by the work that is being done and that we expect it will pay off in terms of higher growth in the future,” the IMF official added.
According to IMF India will continue to grow at a fast pace, with a projected 6.8 per cent rate for Financial Year 2016/17 and 7.2 per cent in 2017/18.
Zhang observed that India is the “fastest growing emerging market economy” in a region that remains the strongest-growing in the world.
Lower global oil prices have boosted economic activity, and helped lower inflation. In addition, fiscal and monetary policies have helped foster economic stability, he explained.
“The currency exchange initiative led to a slowdown in economic activity. However, there are initial signs of recovery as the currency exchange has been progressing well,” said Zhang, while referring to the demonetisation move announced by Modi government in December 2016.
Zhang, however, raised an alarm about the health of the banking system in India, “which is still dealing with a large amount of bad loans”, as well as “heightened corporate vulnerabilities” in several key sectors of the economy.
(With inputs from PTI)