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  • 06 August, 2022

  • 6 Min Read



The International Monetary Fund (IMF) has released its 2022 External Sector Report and advises India to roll back stimulus packages gradually.

Highlight of report

Fiscal and monetary policy stimulus

  • The International Monetary Fund (IMF) advised India to progressively reduce monetary and fiscal policy support.
  • Governmental intervention to promote private sector economic activity through the use of focused, expansionary monetary or fiscal policy is known as "economic stimulus."
  • Central banks often implement monetary policy, which is largely concerned with managing interest rates and the total amount of money in circulation.
  • The word "fiscal policy" refers to a government's overall taxing and spending decisions.

Infrastructure for export

  • To maintain a favorable external sector balance over the longer term, India should expand its export infrastructure and increase shipments by signing free trade agreements with important trading partners.


  • Additional investment regime liberalization and tariff reductions, particularly for intermediate goods, should proceed hand in hand with India.

Rupee appreciation vs the dollar

  • Forex market interventions should only be used to deal with chaotic market situations.
  • It is less necessary to accumulate more reserves because the Reserve Bank of India (RBI) currently has a healthy level of foreign exchange reserves notwithstanding recent declines (they are still sufficient to cover eight months of imports) accumulation of additional reserves is less warranted.

Structural alterations

  • Structural improvements may increase FDI and deepen integration within global value networks.

The Current Account Deficit in India (CAD)

  • According to the Fund, India's current account deficit (CAD) will increase from $38 billion (1.2 percent of GDP) in the previous fiscal year to $108 billion (3.1 percent of GDP) in FY23.
  • The increase in the CAD this year mainly reflects how the conflict in Ukraine has affected oil prices.
  • Import tariff while remaining far below the WTO-allowed level for the nation, India's average applicable import duty increased to 18.3% percent in 2021 from 15 percent the previous year.

The position of the nation's net foreign investment

  • The factor that improved to -11.1 percent of GDP at the end of 2021 from -13.5 percent the year before is typically the difference between its external financial assets and liabilities.

Way forward

  • IMF's recommendation for the removal of fiscal and monetary restrictions: The RBI has already hiked interest rates by 90 basis points since May, and another 35 to 50 bps increase is generally anticipated.
  • Some of the liquidity measures should come to an end: Additionally, it has put an end to some of the liquidity restrictions put in place during the pandemic.
  • The fiscal policies were primarily intended to increase supply rather than demand.
  • The CAD of India is generally consistent with the country's level of per capita income, favorable growth prospects, demographic patterns, and development requirements.
  • External vulnerabilities are caused by the erratic nature of the world economy and the sharp rise in commodity prices.
  • In comparison to its counterparts, India's external debt obligations are "modest," and the danger of short-term rollover is minimal


  • In the wake of the 1930s Great Depression, IMF was founded in 1944 at a summit in Bretton Woods, New York.
  • The IMF and the World Bank are also known as the Bretton Woods twins, as both were the outcome of the summit.
  • Its 190 member nations, which represent a nearly global membership, are in charge of it and are responsible to them.
  • India joined the group in December 1945.
  • Goal: To maintain the stability of the international monetary system, which facilitates trade between nations and their inhabitants through the use of exchange rates and international payments.
  • All macroeconomic and financial sector issues that affect global stability were included in its 2012 mandate.
  • Financing: The IMF's resources mainly come from the money that countries pay as their capital subscription (quotas) when they become members.
  • Each member of the IMF is assigned a quota, based broadly on its relative position in the world economy.
  • Countries can then borrow from this pool when they fall into financial difficulty.


  • World Economic Outlook
  • Global Financial Stability Report
  • Fiscal Monitor
  • Global Policy Agenda

Source: The Indian Express

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