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India better placed among emerging markets to tackle outflows: IMF's Thomas Richardson

Economic Times:  October, 2015

Mumbai: India is better placed among emerging markets to tackle risks arising out of global economic slowdown, said a top IMF official on Monday, reaffirming an optimistic outlook despite some lingering concerns.

The Indian central bank along with its Chinese counterpart are the only ones better equipped to handle huge outflows, he said. "India is big in the global picture. We are bullish on the economy," said Thomas Richardson, IMF Senior Resident Representative for India, Nepal and Bhutan. Richardson was in Mumbai to address students at the Meghnad Desai Academy of Economics.

"India is exposed to global risks, but much less than other emerging markets," he said.

IMF, in its recently released report on the World Economic Outlook, expressed concerns over the fallout of global economic slowdown on emerging markets and also the risks associated with global deflation.

Significantly, the statement comes within days of IMF lowering its growth forecast for this year to 7.3% from 7.5% earlier amid risks of a global slowdown. "India has been lucky with global commodity prices coming down. But also policy has a role to play," said Richardson, underscoring many macro indicators such as lower current account deficit, easing of inflation, and a check on fiscal deficit.

Richardson praised Reserve Bank of India governor Raghuram Rajan's policy initiatives that has helped the country build a sizeable foreign exchange reserves of over $350 billion in case there's a pullout by foreign investors.

"Both RBI and the People's Bank of China are armed with an insurance policy in the form of foreign exchange reserves," he said, adding that only the Chinese and Indian central banks are prepared to deal with an eventuality of strong capital outflows (in case the US Fed hikes its policy rates). Besides, he also acknowledged Reserve Bank's policy initiatives that has helped check consumer inflation.

But there are pitfalls, Richardson warned. The biggest among them are the corporate leverage and non-performing loans in the banking sector which are dragging things down.

Besides, there are concerns about government finances as well. Though the fiscal deficit is reined in, the combined government deficit is still high at 6.5 to 7% of GDP. This can be addressed by widening the tax base and implementing the goods and services taxes reforms, he said.