India will benefit from pro-growth fiscal consolidation

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Despite high world oil prices and a disappointing monsoon, India's economy is expected to grow at a robust pace after expanding in 2003/04 at its fastest rate in more than a decade, the IMF said in its annual economic assessment, which the authorities have agreed, for the first time, to publish. The IMF's Executive Board praised India's economic resilience but cautioned that large fiscal deficits and public debt remain a key constraint on sustained rapid growth.

The Board welcomed the new government's ambitious reform agenda focusing on creating jobs, reducing rural poverty, and addressing fiscal imbalances. It welcomed the new fiscal responsibility law, in particular the intention to eliminate the current deficit by 2008/09 through front-loaded tax reform and better quality in spending; and it encouraged the authorities to strengthen state finances.

The Board noted that tax revenues needed to be enhanced and lower-priority spending reduced to address India's infrastructure needs, and expressed concern about the proposal to spend foreign exchange reserves on infrastructure. It urged the authorities to attract private sector participation and...

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