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IMF asks India to recast PSUs, aid investors

The International Monetary Fund has asked India to take continuous action to rein in public sector deficit and implement a wide-ranging structural reforms to restore investors' confidence, contain the risk of macro-economic instability and enhance growth prospects.

In its World Economic Outlook, released in Washington today, the IMF says that ''in India, the weakness of the exchange rate and equity markets in recent months has reflected not only in the Asian crisis, but also concerns about the economic sanctions introduced following the nuclear tests in May and the limited fiscal adjustment and reforms contained in the Budget in early June.''

The document made public to coincide with the IMF-World Bank annual meeting this week says that neighbouring Pakistan faces even greater challenges, as a result of the economic sanctions and in view of its vulnerable external and domestic financial situation, and unfinished structural reform agenda.

Earlier, in its annual report, the IMF had said that India was in a prolonged recession and was unable to tackle its mounting budgetary imbalances. It found that the fiscal deficit was dangerously large and growing and its reforms were floundering.

The World Bank annual report has also spoken of the increased economic uncertainty after the US had imposed sanctions in protest against India's nuclear tests in May.

Finance Minister Yashwant Sinha, who is arriving in Washington to lead the Indian delegation at the annual meetings of the IMF-WB, is expected to discuss these issues during his meeting with IMF chief Michael Camdessus.

Meanwhile, Institute of International Finance managing director Charles Dallara released his organisation's policy letter for finance ministers and central bank governors coming for the IMF-WB meeting and released its forecasts on private capital flows to emerging markets.

The IIF, the global association of financial institutions, with over 300 members including the world's leading private sector financial firms, called for actions to strengthen the international financial system, rebuild investor confidence and restore the momentum of growth.

The IIF forecasts show that total net private capital flows to 29 leading emerging market economies, including India, in 1998 will fall to about $ 160 billion from $ 240 billion last year and a record of close to $ 310 billion in 1999.

The institute expects the 1999 volume to stabilise around the 1998 level. Foreign direct investment however is seen as continuing at strong levels in excess of $ 100 billion this year and next year.

UNI