1INDEA2022001

IMF Country Report No.
22/386
INDIA
2022 ARTICLE IV CONSULTATION—PRESS RELEASE;
December 2022 STAFF REPORT; AND STATEMENT BY THE EXECUTIVE
DIRECTOR FOR INDIA
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions
with members, usually every year. In the context of the 2022 Article IV consultation with
India, the following documents have been released and are included in this package:
• A Press Release summarizing the views of the Executive Board as expressed during its
November 28, 2022 consideration of the staff report that concluded the Article IV
consultation with India.
• The Staff Report prepared by a staff team of the IMF for the Executive Board’s
consideration on November 28, 2022, following discussions that ended on September
27, 2022, with the officials of India on economic developments and policies. Based on
information available at the time of these discussions, the staff report was completed
on November 7, 2022.
• An Informational Annex prepared by the IMF staff.
• A Statement by the Executive Director for India.
The IMF’s transparency policy allows for the deletion of market-sensitive information and
premature disclosure of the authorities’ policy intentions in published staff reports and
other documents.
Copies of this report are available to the public from
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Washington, D.C.
© 2022 International Monetary Fund

PR22/444
IMF Executive Board Concludes 2022 Article IV Consultation

with India
FOR IMMEDIATE RELEASE
Washington, DC – December 22, 2022: On November 28, The Executive Board of the
International Monetary Fund (IMF) concluded the Article IV consultation1 with India.
The economy has rebounded from the deep pandemic-related downturn. Real GDP grew by
8.7 percent in FY2021/22, bringing total output above pre-pandemic levels. Growth has
continued this fiscal year, supported by a recovery in the labor market and increasing credit to
the private sector. New COVID cases have fallen to low levels, supported by high vaccination
rates. The free administration of booster shots and broader booster eligibility criteria should
help improve vaccine coverage.
Policies are addressing new economic headwinds. These include inflation pressures, tighter
global financial conditions, the fallout from the war in Ukraine and associated sanctions on
Russia, and significantly slower growth in China and advanced economies. The authorities
have responded with fiscal policy measures to support vulnerable groups and to mitigate the
impact of high commodity prices on inflation. Monetary policy accommodation has been
gradually withdrawn and the main policy rate has been increased by 190 basis points so far
in 2022.
Growth is expected to moderate reflecting the less favorable outlook and tighter financial
conditions. Real GDP is projected to grow at 6.8 percent and 6.1 percent in FY2022/23 and
FY2023/24 respectively. Reflecting broad-based price pressures, inflation is projected at
6.9 percent in FY2022/2023 and is expected to moderate only gradually over the next year.
The current account deficit is expected to increase to 3.5 percent of GDP in FY2022/23 as a
result of both higher commodity prices and strengthening import demand.
Uncertainty around the outlook is high, with risks tilted to the downside. A sharp global growth
slowdown in the near term would affect India through trade and financial channels. Intensifying
spillovers from the war in Ukraine can cause disruptions in the global food and energy
markets, with significant impact on India. Over the medium term, reduced international
cooperation can further disrupt trade and increase financial markets volatility. Domestically,
rising inflation can further dampen domestic demand and impact vulnerable groups. On the
upside, however, successful implementation of wide-ranging reforms or greater than expected
dividends from the remarkable advances in digitalization could increase India’s medium-term
growth potential.
1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members,
usually every year. A staff team visits the country, collects economic and financial information, and
discusses with officials the country's economic developments and policies. On return to headquarters,
the staff prepares a report, which forms the basis for discussion by the Executive Board.
Executive Board Assessment2
Executive Directors concurred that the authorities have appropriately responded to

post-pandemic economic shocks with fiscal policy measures to support vulnerable groups and
with front-loaded monetary policy tightening to address elevated inflation. They generally
noted that while public debt sustainability risks have increased, these risks are mitigated given
the debt characteristics. Directors encouraged a more ambitious and well-communicated
medium-term fiscal consolidation, anchored on stronger revenue mobilization and further
improvement in expenditure efficiency, while high-quality spending on infrastructure, education
and health is protected. They also observed that further improvements in public financial
management, fiscal institutions and transparency would support consolidation efforts.
Directors noted that additional monetary policy tightening should be carefully calibrated and
clearly communicated to balance inflationary objectives and impact on economic activity.
Noting that India’s external position was broadly in equilibrium, Directors observed that the
exchange rate should continue to act as a shock absorber with foreign exchange intervention
limited to addressing disorderly market conditions. Directors welcomed the authorities’ plans
to introduce a central bank digital currency.
While noting the improvement in corporate and financial sector balance sheets, Directors
encouraged additional measures to counter risks stemming from tightening financial
conditions. They observed that banks should be encouraged to build additional capital buffers
and recognize problem loans and noted that targeted prudential tools could strengthen the
banking system’s resilience to rising interest rate risks. Directors encouraged the authorities to
make further progress on financial sector reforms.
Directors commended the authorities for the remarkable achievements in digitalization. Digital
public infrastructure has enabled the rapid deployment of support during the pandemic, and
digital advances have facilitated efficient payments and increased financial inclusion.
Narrowing the digital divide through improved access and literacy would further support
productivity gains.
Directors encouraged the authorities to make additional progress on the structural reform
agenda. Increasing female labor force participation, reducing youth unemployment and
reducing informality remain critical to sustaining strong and inclusive growth. Strengthening
governance and the regulatory framework would foster transparency and safeguard public
accountability. Directors welcomed new trade agreements and observed that additional tariff
reduction could help deepen India’s integration in global value chains and support growth.
Directors noted India’s important progress in implementing its climate agenda, including
through increasing the share of renewables in energy production and improving energy
efficiency. Directors observed that additional efforts would be needed to meet the authorities’
net zero objective.
2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the
views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation
of any qualifiers used in summings up can be found here:
http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
India: Selected Economic and Financial Indicators, 2018/19-2023/24 1/
2018/19 2019/20 2020/21 2021/22 2022/23 2023/24
Est. Projections
Growth (in percent)

Real GDP (at market prices) 6.5 3.7 -6.6 8.7 6.8 6.1
Prices (percent change, period average)

Consumer prices - Combined 3.4 4.8 6.2 5.5 6.9 5.1
Saving and investment (percent of GDP)

Gross saving 2/ 30.2 29.4 28.8 30.0 29.4 30.1
Gross investment 2/ 32.3 30.2 27.9 31.2 32.8 33.0
Fiscal position (percent of GDP) 3/
Central government overall balance -3.9 -4.8 -8.6 -6.7 -6.5 -6.2
General government overall balance -6.4 -7.5 -12.8 -10.0 -9.9 -9.0
General government debt 4/ 70.4 75.1 89.2 84.2 83.5 83.9
Cyclically adjusted balance (% of potential GDP) -6.8 -7.4 -8.7 -8.3 -8.5 -8.3
Cyclically adjusted primary balance (% of potential GDP) -2.0 -2.6 -3.8 -3.3 -3.2 -2.7
Money and credit (y/y percent change, end-period)
Broad money 10.5 8.9 12.2 8.8 8.9 9.0
Domestic Credit 11.8 8.3 9.5 9.0 13.6 11.4
Financial indicators (percent, end-period)
91-day treasury bill yield (end-period) 6.1 4.4 3.3 3.8 … …
10-year government bond yield (end-period) 7.4 6.1 6.2 6.8 … …
Stock market (y/y percent change, end-period) 17.3 -23.8 68.0 18.3 … …
External trade (on balance of payments basis)
Merchandise exports (in billions of U.S. dollars) 337.2 320.4 296.3 429.2 450.3 462.8
(Annual percent change) 9.1 -5.0 -7.5 44.8 4.9 2.8
Merchandise imports (in billions of U.S. dollars) 517.5 477.9 398.5 618.6 737.7 769.6
Terms of trade (G&S, annual percent change) -1.8 1.5 1.6 -8.1 -2.8 2.2
Balance of payments (in billions of U.S. dollars)
Current account balance -57.2 -24.5 24.0 -38.7 -118.3 -109.7
(In percent of GDP) -2.1 -0.9 0.9 -1.2 -3.5 -2.9
Foreign direct investment, net ("-" signifies inflow) -30.7 -43.0 -44.0 -38.6 -47.7 -52.6
Portfolio investment, net (equity and debt, "-" = inflow) 2.4 -1.4 -36.1 16.8 -8.2 -18.0
Overall balance ("+" signifies balance of payments surplus) -3.3 59.5 87.3 47.5 -20.1 17.8
External indicators
Gross reserves (in billions of U.S. dollars, end-period) 412.9 477.8 577.0 607.3 540.5 558.3
(In months of next year's imports (goods and services)) 8.2 11.1 9.0 7.9 6.7 6.5
External debt (in billions of U.S. dollars, end-period) 543.1 558.4 573.7 619.6 669.1 742.5
External debt (percent of GDP, end-period) 20.1 19.7 21.5 19.5 19.6 19.8
Of which: Short-term debt 8.7 8.4 8.8 8.6 8.6 8.9
Ratio of gross reserves to short-term debt (end-period) 1.8 2.0 2.4 2.2 1.8 1.7
Real effective exchange rate (annual avg. percent change) -4.7 3.0 -0.9 0.3 … …
Exchange rate (rupee/U.S. dollar, end-period) 69.2 75.4 73.5 75.8 … …
Memorandum item (in percent of GDP)

Fiscal balance under authorities' definition -3.4 -4.7 -9.2 -6.7 -6.4 -6.2
Sources: Data provided by the Indian authorities; Haver Analytics; CEIC Data Company Ltd; Bloomberg L.P.; World Bank, World Development Indicators; and IMF staff
estimates and projections.
1/ Data are for April–March fiscal years.
2/ Differs from official data, calculated with gross investment and current account. Gross investment includes errors and omissions.
3/ Divestment and license auction proceeds treated as below-the-line financing.
4/ Includes combined domestic liabilities of the center and the states, and external debt at year-end exchange rates.
INDIA
STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION
November 4, 2022
KEY ISSUES
Context. The economy has rebounded from the pandemic-related downturn but is
facing new headwinds. The authorities have responded with fiscal policy measures to
support vulnerable groups and to mitigate the economic impact of commodity price
increases, as well as with front-loaded monetary policy tightening to address elevated
inflation. A world class public digital infrastructure is facilitating innovation, productivity
improvements and access to services. Further structural reforms, including to address the
adverse impact of climate change, are needed to secure strong and sustainable growth.
Policy Recommendations.
• Fiscal policy to ensure medium-term sustainability. The additional support to

vulnerable groups this year is warranted but, with fiscal space at risk, policies should
focus on a credible and clearly communicated consolidation, anchored on stronger
revenue mobilization and spending efficiency. Further improvements in public
financial management, fiscal institutions and transparency would help. India’s
digitalization success can be harnessed to better target government services.
• Monetary policy tightening. Inflation pressures have led to an appropriate shift

towards policy tightening. Additional tightening should be carefully calibrated and
communicated. The exchange rate should act as the main shock absorber, with
intervention limited to addressing disorderly market conditions.
• Financial sector policies to maintain financial stability and support growth.

Financial sector policies should continue to facilitate the exit of non-viable firms and
encourage banks to build capital buffers and recognize problem loans. Prudential
tools could help address risks stemming from tightening in financial conditions.
Reforms to strengthen governance and reduce the government’s footprint are
needed to support strong medium-term growth.
• Structural reforms for resilient, green and inclusive growth. India is making
important progress in implementing its climate agenda. Additional efforts, as well as
financing and technology transfer, are needed to move to a carbon-neutral
economy. The pandemic has highlighted the need to strengthen health, education
and social spending, and narrowing the digital divide through improved digital
access and literacy. Improving productivity, strengthening governance, and
furthering trade liberalization would help medium-term growth.
INDIA
Approved By The Article IV mission took place September 12-27, 2022. The
Anne-Marie Gulde-Wolf team comprised N. Choueiri (Head), D. Prihardini, J. Spray,
(APD) and Anna Ilyina J. Turunen, T. Xu (all APD), M. Casiraghi (MCM),
(SPR) M. Gorbanyov (SPR), S. Kotera (OAP) and L. Breuer (Senior
Resident Representative). S. Mohapatra and G. Dang assisted
the mission. S. Bhalla and S. Dash also participated in some
mission meetings. The mission met with the Economic Affairs
Secretary A. Seth, Chief Economic Advisor A. Nageswaran,
Reserve Bank of India (RBI) Deputy Governors M. D. Patra and T.
R. Sankar, and other senior government and RBI officials, along
with representatives from the private sector. M. Conde Panesso
and A. Goel (APD) assisted in the preparation of this report.
CONTENTS
BROAD-BASED ECONOMIC RECOVERY IS UNDERWAY ____________________________________________ 4
HEADWINDS WEIGH ON THE ECONOMIC OUTLOOK ______________________________________________ 7
FISCAL POLICY TO ENSURE MEDIUM-TERM SUSTAINABILITY ___________________________________ 8
MONETARY POLICY TIGHTENING ____________________________________________________________________12
FINANCIAL SECTOR POLICIES TO MAINTAIN STABILITY _________________________________________14
STRUCTURAL REFORMS FOR A GREEN AND INCLUSIVE RECOVERY____________________________17
OTHER ISSUES ___________________________________________________________________________________________22
STAFF APPRAISAL_______________________________________________________________________________________22
BOXES
1. Unleashing India’s Growth Potential ______________________________________________________40
2. Financial Sector and Economic Growth in India ____________________________________________41
3. Digitalization and GovTech_______________________________________________________________42
4. India’s Transition to a Carbon-Neutral Economy ___________________________________________43
FIGURES
1. Labor Market Developments ______________________________________________________________ 5
2. India’s Green House Gas Emissions _______________________________________________________20
3. Recent Macroeconomic Developments ___________________________________________________25
4. External Sector Developments____________________________________________________________26
2 INTERNATIONAL MONETARY FUND

INDIA
5. Financial Markets Developments _________________________________________________________27

6. Monetary Sector Developments __________________________________________________________28
7. Fiscal Sector Developments ______________________________________________________________29
8. Corporate and Banking Sector Developments _____________________________________________30
TABLES
1. Selected Social and Economic Indicators, 2018/19-2023/24 ________________________________31
2. Balance of Payments, 2018/19-2023/24 ___________________________________________________32
3. Reserve Money and Monetary Survey, 2018/19- August 2022/23 ___________________________33
4. Central Government Operations, 2018/19-2023/24 ________________________________________34
5. General Government Operations, 2018/19-2023/24 _______________________________________35
6. Macroeconomic Framework, 2018/19-2027/28 ____________________________________________36
7. Indicators of External Vulnerability, 2018/19-2021/22 ______________________________________37
8. Financial Soundness Indicators, 2018/19-2021/22 _________________________________________38
9. High Frequency Economic Activity Indicators______________________________________________39
APPENDICES
I. External Sector Assessment _______________________________________________________________44
II. Risk Assessment Matrix _______________________________________________________________________________ 45
III. Debt Sustainability Analysis __________________________________________________________________________ 47
IV. Recent and Planned Capacity Development _______________________________________________________ 55
V. Uptake of Previous IMF Advice _______________________________________________________________________ 57
VI. Options for Central Bank Digital Currency for India _______________________________________________ 59
VII. Ineq uality and Poverty in India: Impact of the Pandemic and Policy Response ________________ 64
VIII. Evolution of India’s Trade Policy ___________________________________________________________________ 68
INTERNATIONAL MONETARY FUND 3

INDIA
BROAD-BASED ECONOMIC RECOVERY IS UNDERWAY

1. Growth has rebounded from the deep
pandemic-related downturn. Real GDP grew by
8.7 percent in fiscal year (FY) 2021/22. All sectors
recovered to pre-pandemic levels by
end-FY2021/22 except for contact-intensive
services, which remained 11 percent below
FY2019/20 levels. Growth was 13.5 percent
year-on-year in the first quarter of FY2022/23, as
domestic demand picked-up but net exports
weighed on growth. High frequency indicators
including Purchasing Manager Indices (PMIs) and
mobility suggest continued growth in the second
quarter. However, the estimated output gap
remains negative. As of end-September new
COVID cases have fallen to low levels and about
70 percent of the population was fully vaccinated.
The free administration of booster shots and
broader eligibility criteria should help further
improve vaccine coverage.
2. Inflation is elevated. Inflation has been

at or above the Reserve Bank of India’s (RBI's)
tolerance band of 4±2 percent since
January 2022, in the context of growing domestic
demand, commodity and food price shocks and
supply chain disruptions. Headline consumer price
inflation rose slightly to 7.4 percent in September,
led by a pickup in food inflation to 8.4 percent.
Core inflation (excluding food and fuel) remained
high at 6 percent. Long-term inflation
expectations remain relatively well anchored.
However, the risk of second-round effects from fuel and commodity price shocks remains high.
3. While employment is recovering, the impact of the pandemic on the labor market and
livelihoods has been substantial. Most affected were vulnerable groups, including females, youth,
those with less skills and education, and daily wage and migrant workers (Figure 1). Reduced access
to education and training has adversely impacted human capital accumulation. Post-pandemic
recovery in employment is broad-based across gender and age groups but is uneven across sectors.
The sluggish recovery in real earnings weighs on consumption. While government policy measures
have helped significantly, the pandemic has temporarily disrupted gains in human development
(Appendix VII).

INDIA
Figure 1. Labor Market Developments

Vulnerable workers, such as casual workers, were hardest … this includes females, youth, and those with less
hit by the pandemic … education.
Workers who Lost the Job by Employment Status (Urban) Employment Trajectories (Persons Employed as of Q2 2019)
(Share of workers whose status changed to not employed) (Employment trajectories of each 2Q of 2019, 2020, and 2021)
70% Empl. (2Q-20) -> Empl. (Q2-21) Not empl. (2Q-20)-> Empl. (Q2-21)
From Regular Wage Employee Empl. (2Q-20)->Not empl. (Q2-21) Not empl. (2Q-20)-> Not empl. (Q2-21)
60% 100%
From Self-employed
90%
50% From Casual Worker 80%
40% 70%
60%
30% 50%
40%
20% 67% 71% 66% 72%
30% 59% 65%
50%
10% 20%
10% 26%
0% 0%
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Female Male -29 30-44 45-59 Primary Secondary Tertiary
2018 2019 2020 2021 2022 Gender Age Education level
Source: MOSPI. Sources: CMIE; and IMF staff estimates.
Post-pandemic employment recovery is broad based, although pre-pandemic patterns continue to prevail, as employment
rates remain low and unemployment high for females and youth.
Employment to Population Ratio (Urban) Unemployment Rate (Urban)

(Aged 15 and above, in percent) (Aged 15 and above, in percent)
Female Youth (15-29) Male (RHS) 40
45 70
Female Male Youth (15-29)
35
40 65
30
35
60 25
30
55 20
25
15
50
20 10
15 45
5
10 40 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2019 2020 2021 2022 2019 2020 2021 2022

Source: MOSPI. Source: MOSPI.
Note: Dotted lines indicate FY2019-20 average. Note: Dotted lines indicate FY2019-20 average.
The employment recovery is uneven across sectors with …and the sluggish recovery in real earnings weighs on
services lagging… consumption.
Employment by Sectors Average Real Monthly Earnings 1/
(Employed persons by sectors, index FY2019=100) (CY2019=100, not seasonally adjusted)
110 105
105 100
100
95
95
Total
90
90 Agriculture
Industries 85
Urban Rural Total
85
Services
80
80
2018Q1 2018Q3 2019Q1 2019Q3 2020Q1 2020Q3 2021Q1 2021Q3 2022Q1
FY2019 FY2020 FY2021
1/ Deflated by CPI (headline) for combined, urban, and rural.
Sources: UN; MHA; MOSPI; CMIE; and IMF staff calculations. Sources: CMIE; MOSPI; and IMF staff calculations.

INDIA
4. Credit growth has increased, thus strengthening financial sector support to economic
activity. Following relatively subdued growth over the past two years, non-food bank credit growth
rose to 15.1 percent in July, up from 6.2 percent a year ago, driven by stronger credit growth by
private banks. The pick-up was led by credit to
Micro Small and Medium-Sized Enterprises
(MSMEs) in the industry sector, with credit growth
to medium-sized enterprises buoyant at 37 percent
and to micro and small enterprises at 28.3 percent.
Credit to large enterprises recorded a smaller
increase of 5.2 percent (up from -3.8 percent a year
ago). Credit to the services sector grew
16.5 percent in July, and personal loans rose by
18.8 percent. The credit-to-GDP gap, however,
remains negative.
5. The external position in FY2021/22 was broadly in line with that implied by
medium-term fundamentals and desirable policies (Appendix I). Current account surpluses and
large capital inflows helped the RBI replenish its international reserves during the pandemic. In
FY2021/22, however, the current account returned to a deficit of about 1.2 percent of GDP,
reflecting the domestic demand recovery and rising commodity prices. Based on the EBA model,
staff assessed the current account gap at 1 percent of GDP, after accounting for transitory impacts
of the COVID-19 shock. Capital inflows helped improve the net international investment position.
6. The widening current account deficit together with portfolio investment outflows
have put pressure on the exchange rate this year, contributing to foreign exchange (FX)
reserves losses. External shocks—including global financial tightening, and the war in Ukraine—
along with recovering domestic demand have contributed to pressures on the exchange rate. The
adverse impact of higher imported oil prices was mitigated by importing oil from Russia at a
discounted price. Responding to rising food prices and domestic food security concerns, the
authorities have restricted wheat, sugar, and rice exports. Notwithstanding steady FDI inflows, India
experienced portfolio investment outflows in the first half of 2022 and the rupee’s exchange rate has
depreciated. As a result, and reflecting both
valuation losses and RBI intervention, FX
reserves decreased but remain at a relatively
comfortable level, covering about 7 months of
prospective imports and more than
150 percent of the IMF reserve adequacy
metric. The RBI has further relaxed capital flow
management measures by raising individual
borrowing limits (for all borrowers) and cost
ceiling (for investment-grade borrowers) on
external commercial borrowings 1 and bank
1 Temporary measure introduced in July, effective until end-2022.

INDIA
external FX borrowing and widening the scope for foreign investment in government and corporate
bonds, as well as FDI in the oil, gas, and life insurance sectors.
HEADWINDS WEIGH ON THE ECONOMIC OUTLOOK

7. Looking forward, real GDP growth is expected to moderate amid higher oil prices,
weaker external demand, and tighter financial conditions. Staff’s baseline scenario projects
growth at 6.8 percent in FY2022/23 and 6.1 percent in FY2023/24, with the moderation reflecting
less favorable external conditions and tighter financial conditions. The war in Ukraine and sanctions
on Russia continues to impact the Indian economy through multiple channels, including elevated
commodity prices, lower external demand, and uncertainty-driven adverse confidence effects.
Potential growth is expected at 6 percent over the medium term under the baseline (Box 1). The
current account deficit is expected to increase to 3.5 percent of GDP in FY2022/23, reflecting both
higher commodity prices and strengthening import demand, before declining to around 2.5 percent
over the medium term. Credit growth is expected to strengthen but further financial deepening
would be needed to support medium-term economic growth (Box 2).
8. Inflation is expected to moderate only gradually over the next two years. Inflation is
projected at 6.9 percent in FY2022/23, reflecting near-term uncertainties in food prices and input
costs and relatively sticky core inflation. Inflation is expected to gradually return to within the
tolerance band next year, reflecting favorable base effects (including for food inflation), the impact
of monetary policy tightening, and well-anchored long-term inflation expectations.
Text Table 1: Medium Term Outlook, 2018/19-2027/28

FISCAL YEAR 1/ 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28
Est. Projections
Output
Real GDP growth (%) 6.5 3.7 -6.6 8.7 6.8 6.1 6.8 6.8 6.5 6.2
Prices
Inflation, CPI-Combined (%) 3.4 4.8 6.2 5.5 6.9 5.1 4.4 4.1 4.0 4.0
General government finances

Revenue (% of GDP) 20.0 19.9 18.3 20.2 19.0 19.2 19.6 19.9 20.1 20.4
Expenditure (% of GDP) 26.3 27.4 31.1 30.1 28.9 28.3 28.1 27.8 27.7 27.7
Fiscal balance (% of GDP) -6.4 -7.5 -12.8 -10.0 -9.9 -9.0 -8.5 -7.9 -7.5 -7.3
Public debt (% of GDP) 70.4 75.1 89.2 84.2 83.5 83.9 84.1 83.8 83.5 83.1
Money and credit

Broad money (% change) 10.5 8.9 12.2 8.8 8.9 9.0 8.6 9.6 10.7 11.1
Domestic Credit (% change) 11.7 8.3 9.5 9.0 13.6 11.4 8.2 8.2 9.2 10.2
Credit to the private sector (% change) 12.7 6.3 5.7 8.1 14.5 11.8 12.1 12.6 13.2 13.8
3-month Treasury bill interest rate (%) 6.1 4.4 3.3 3.8 … … … … … …
Balance of payments
Current account (% of GDP) -2.1 -0.9 0.9 -1.2 -3.5 -2.9 -2.6 -2.6 -2.6 -2.6
FDI, Net Inflow (% of GDP) 1.1 1.5 1.6 1.2 1.4 1.4 1.4 1.4 1.4 1.4
Reserves (months of imports) 8.2 11.1 9.0 7.9 6.7 6.5 6.5 6.5 6.3 6.4
External debt (% of GDP) 20.1 19.7 21.5 19.5 19.6 19.8 20.1 20.4 20.8 21.2
Exchange rate
REER (% change) -4.7 3.0 -0.9 0.3 ... ... ... ... ... ...
Sources: Data provided by the Indian authorities; Haver Analytics; CEIC Data Company Ltd; Bloomberg L.P.; World Bank, World Development Indicators; and IMF staff estimates and projections.
1/ Fiscal Year is April to March (e.g. 2019/20 = Apr-2019 - Mar-2020).
9. Uncertainty about the economic outlook is high and risks are tilted to the downside
(Appendix II).
• External risks. A sharp global growth slowdown in the near term would affect India through
trade and financial channels. Intensifying spillovers from the war in Ukraine combined with
supply and demand shocks can cause disruptions in the global food and energy markets. This

INDIA
can lead to persistently higher inflation and de-anchoring inflation expectations. Over the
medium term, broadening of conflicts and reduced international cooperation can accelerate
deglobalization, resulting in trade disruptions, commodity price volatility, and fragmentation of
technological and payments systems.
• Domestic risks. Rising inflation can impact vulnerable groups. Emergence of more contagious
COVID-19 variants can dent confidence and force new mobility restrictions, with impact on trade
and growth. Tightening financial conditions can weaken asset quality and result in financial
sector stress, limiting credit provision and negatively impacting long-term growth. Further
weakening of the fiscal position can increase financing costs. Finally, climate change could
induce more frequent natural disasters, heatwaves, and water stress, causing infrastructure
damage, water and food shortages and reducing medium-term growth.
• Upside risks. A resolution of the war in Ukraine and de-escalation of geopolitical tensions can
boost international cooperation, moderate commodity price volatility, and promote trade and
growth. A “soft landing” in the U.S., Europe, and China can increase external demand and
confidence. Successful implementation of wide-ranging structural reforms, or greater than
expected dividends from ongoing digital advances, could increase India’s medium-term growth
potential.
10. A materialization of downside risks would worsen the outlook significantly. Should the
most important downside external and domestic risks jointly materialize, growth would fall
significantly in FY2022/23 and FY2023/24 compared with staff’s baseline projection and inflation
would increase markedly, particularly in FY2022/23. Both exports and imports would decline,
particularly in FY2022/23, but the overall impact on the trade balance and current account would be
relatively muted.
11. The authorities were more optimistic than staff about the economic outlook amid the
uncertain external environment. They projected growth at about 7 percent in FY2022/23, as
government capital spending and private demand are expected to strengthen further in the
remainder of the year. They emphasized the role of reforms, such as the production linked
incentives (PLI) schemes, in boosting growth to a feasible medium-term range. The authorities
disagreed with the risks of de-anchoring inflation expectations and expected inflation to fall below
6 percent in the last quarter of the fiscal year. They highlighted that India’s external position remains
sufficiently strong to withstand external shocks in the near term. They expected a current account
deficit within 3 percent of GDP this year, with steady FDI and resumption of portfolio investment
inflows comfortably financing a deficit of up to 3 percent of GDP over the medium term.

INDIA
FISCAL POLICY TO ENSURE MEDIUM-TERM

SUSTAINABILITY
12. The fiscal deficit narrowed in FY2021/22, reflecting the recovery and phasing out of
pandemic-related expenditures.
• The central government

deficit declined to
6.7 percent, due to
higher revenues and
lower spending. Tax
revenues were particularly
buoyant, reflecting the
recovery and successful
administrative measures
to improve compliance.
Some pandemic-related
expenditures were
appropriately phased out,
contributing to a
1 percent of GDP
reduction in spending.
• State governments’ deficit is estimated to have declined close to the medium-term target
of 3 percent. There is considerable variation across states and some face debt burdens over
40 percent of state-level GDP. Despite variations in fiscal performance, spreads between state
development loans (SDLs) and central government securities have remained within a narrow
range, reflecting an implicit sovereign guarantee, though there is some evidence of a negative
relationship between spreads and fiscal prudence. The importance of SDL spreads has grown as
states increase their market borrowing due to greater financing needs coupled with less reliance
on National Small Savings Fund borrowing.

INDIA
13. The FY2022/23 budget and additional support measures suggest a slightly
contractionary fiscal stance, and the stance is projected to tighten further in FY2023/24.
• The central government fiscal deficit targeted in the budget is within reach. Measures to
mitigate the impact of higher commodity prices (free food rations; reduction in fuel taxes; higher
fertilizer subsidies; and a fuel subsidy for low-income households) are being offset by buoyant
GST and income tax revenues. The latter reflect improvements in tax administration, and
additional taxes on domestic crude oil production and fuel exports. Staff’s projection assumes a
small under-execution of the substantial capital budget.
• The additional support to vulnerable groups this year is warranted, but improving
targeting is necessary. The direct support to the vulnerable is welcome. The additional fertilizer
subsidies will help agricultural production and incomes but there is room to better target them,
given the high cost. Similarly, the reduction in fuel excise taxes may provide some temporary
cushion but is not well targeted, entailing a large fiscal cost. These tax cuts should be phased
out and support to vulnerable groups provided through the existing transfer system.
• A stronger tightening in the general government fiscal stance is expected for FY2023/24.
Expenditure will decline as free food rations expire and fertilizer prices ease. Central government
revenue should return to pre-pandemic levels, even if fuel excises remain unchanged.
14. Baseline projections suggest a gradual decline in the fiscal deficit and stabilization of
public debt over the medium-term, but debt sustainability risks have increased. High debt
levels (84 percent of GDP in FY2021/22) and substantial gross financing needs (15 percent of GDP)
coupled with monetary policy tightening increase debt sustainability risks (Appendix III). These risks
are mitigated as the bulk of public debt are fixed-rate instruments denominated in domestic
currency and, due to regulatory requirements, predominantly held by residents.
15. India’s fiscal space is at risk and well-communicated consolidation is needed to ensure
medium-term fiscal sustainability. The medium-term
fiscal anchor is under review as part of revisions to the
Fiscal Responsibility and Budget Management (FRBM)
Act. Nonetheless, the authorities have reaffirmed their
commitment to a 4.5 percent of GDP central government
deficit target by FY2025/26, implying a general
government deficit of 7.5 percent of GDP (down from
9.9 percent in FY2022/23). A clearly communicated
medium-term fiscal consolidation plan is critical to
enhance policy space and facilitate private sector led growth. Announcing further deficit-reduction
measures would reduce uncertainty and lower risk premia. In the short-term, fiscal consolidation
would also support the RBI’s efforts to maintain price stability.

INDIA
16. Policy efforts Potential Consolidation Scenario

should be anchored on (Change between FY2022/23 and FY2027/28, % of GDP)
stronger revenue GST 1.0
mobilization and Excise 0.4
improving expenditure Income tax 0.4
efficiency. Fiscal Subsidies -0.9
consolidation should be Outcome in FY2027/28 Under Consolidation Scenario
more ambitious than in the (% of GDP)
baseline, feasibly targeting Cyclically adjusted primary balance -0.4
an additional general General Government Balance -6.0
government primary General Government Balance (Authorities' Definition) -6.0
consolidation of around Source: IMF Staff estimates, de Mooij and others (2019)
1 percent of GDP by
FY2027/28, bringing debt down to 80 percent of GDP. Revenue measures can include: reversing the
fuel excise tax cuts, further broadening the corporate and personal income tax bases, simplifying the
goods and services tax (GST) rate structure, rationalizing the items subject to preferential GST
treatment, and continued improvements in tax administration, in line with international good
practice. These measures would help narrow India’s tax gap, estimated at around 5 percent of GDP.
Maintaining momentum in the asset monetization and privatization agenda can generate additional
receipts. Improving expenditure efficiency is possible through better targeting of subsidies, greater
utilization of the existing social support infrastructure (e.g., Direct Benefit Transfer) to reduce
leakages, continued rationalization of central schemes, as well as reforming electricity tariffs and
improving the financial viability of electricity distribution companies. The latter would also support
development goals, including the clean energy transition.
17. High-quality spending on infrastructure, education and health should be protected to

support green and inclusive growth. Without a clear medium-term consolidation strategy there is
a higher risk that growth-enhancing capital expenditure will be under-executed in the face of
pressures to meet targeted deficits. Similarly, expenditure on education and health, important
drivers of long-term growth, would need to be prioritized within the strategy. Targeted support for
vulnerable groups should continue to be prioritized.
18. Continuing efforts to improve public financial management (PFM), fiscal institutions
and transparency are critical. As the authorities undertake consolidation, fiscal transparency
becomes more important, to impart credibility and broad public support to the strategy.

INDIA
Recognizing previously off-budget expenditure at the center and state level has improved
transparency. Digital solutions have helped streamline PFM processes, advancing transparency and
governance, including through e-procurement, faceless income tax assessments and the recent
rollout of e-bills. The development of an integrated Government Financial Management System is
welcome and can be complemented by a dedicated platform for central, state, and local
governments to share fiscal information. This platform, along with enhanced center-state
coordination, would support the timely production of consolidated fiscal reports and hence the
identification of fiscal risks at the sub-national level. The IMF is supporting select states to improve
important PFM areas such as the development of a medium-term fiscal framework and commitment
control systems.
19. Digital public infrastructure (India Stack) enabled the rapid deployment of support
during the pandemic and can be further harnessed to improve government service delivery.
The digital infrastructure is focused on delivering citizen-centric public services (Box 3). The
expansion of this infrastructure to health, education, e-commerce and logistics is ongoing. Building
on this infrastructure to streamline and coordinate social support programs could be considered. A
similar initiative is under development for the coordination of public sector investment projects
across ministries.
20. The authorities largely agreed with the assessment of the fiscal stance and the need
for medium-term consolidation. They emphasized that debt remains sustainable given favorable
growth dynamics under various scenarios and, noting their strong commitment to consolidation,
assessed that fiscal space is not at risk. The authorities view a central government deficit target of
4.5 percent of GDP in FY2025/26 as appropriate and achievable and expect the state government’s
deficit to return to 3 percent of GDP, over the same time frame. The targets will be achieved through
continued prioritization of ongoing government programs, leading to slower growth in recurrent
expenditure, and through further revenue-enhancing measures that increase voluntary compliance.
They considered the fuel excise tax cuts as necessary to manage inflation. Their longer-term fiscal
strategy will be communicated closer to FY2025/26; this, and amendments to the FRBM Act have
not been proposed to maintain policy flexibility until uncertainties ease.
MONETARY POLICY TIGHTENING

21. Following significant and broad-based support during the pandemic, the RBI has
tightened monetary policy. Accommodative monetary policy helped support financial stability and
economic activity during the pandemic. However, persistent inflation pressures have prompted an
appropriate and front-loaded shift towards policy tightening. To counter these pressures and to
ensure that inflation expectations remain anchored, the RBI has increased the policy rate three times
since May 2022, by a cumulative 190 basis points. In parallel, the RBI has absorbed liquidity using
the variable rate reverse repo auctions, and through raising the cash reserve ratio by 50 bps in
May 2022, having also discontinued its government securities purchase program in October 2021.
Surplus liquidity also moderated due to capital outflows. The overnight call money rate has risen,
approaching the policy rate. Long-term inflation expectations remain relatively well anchored at
around 5 percent.

INDIA
22. Additional policy rate tightening is needed and should be carefully calibrated and
clearly communicated to balance inflationary pressures and economic activity. Although the
output gap remains negative, elevated inflation and
strengthening recovery imply the need for further
rate actions. 2 Frontloading monetary policy actions
shows commitment to the inflation target, which
can help anchor inflation expectations, thus
necessitating less aggressive policy increases in the
future. At the same time, the magnitude of
additional policy tightening should be
data-dependent and well-timed given the
significant economic costs of over-tightening.
Monetary policy communication can also improve policy transmission and reinforce market
confidence and has helped guide market expectations about the policy stance.
23. Exchange rate flexibility should remain the main shock absorber, with intervention
limited to addressing disorderly market conditions. A combination of severe external shocks has
led to U.S. Dollar appreciation and surges in
commodity prices, exerting depreciation
pressures on emerging market currencies
including the Indian Rupee. The RBI used
previously accumulated foreign exchange
reserves to accommodate the impact of
extraordinary shocks and smooth excessive
market volatility, resulting in more limited rupee
depreciation vis-à-vis the U.S. Dollar in 2022
compared to many other emerging market
currencies and precluding emergence of
disorderly market conditions. Going forward, flexible exchange rate should continue to act as the
first line of defense in absorbing external shocks, with interventions limited to preventing disorderly
market fluctuations. India’s external position remains sufficiently strong to withstand external shocks
in the near term.
24. A Central Bank Digital Currency’s (CBDC) greater additional benefits may result from
facilitating cross-border transactions. The authorities intend to begin the phased implementation
of both retail and wholesale CBDC within the current fiscal year with the aim to complement the
domestic payment system and facilitate cross-border transactions. The extent to which CBDC can
deliver on these goals will depend crucially on design features (Appendix VI). A CBDC would
complement the already relatively efficient domestic payment system where private providers offer
low cost, real-time payments. At the same time, a CBDC could significantly contribute to addressing
2 The real neutral rate is estimate at about 1 percent, despite high pandemic-related uncertainties.

INDIA
the inefficiencies that characterize cross border transactions but would require strong international
cooperation. Important risks, such as threats to cyber security, warrant caution in implementation.
25. The authorities reiterated their commitment to bringing inflation back to target and
to maintaining a flexible exchange rate. The RBI re-affirmed its continued focus on withdrawal of
accommodation. The authorities highlighted the challenges associated with the spillovers from
advanced economies’ monetary policy actions and with consistent forward guidance in a highly
uncertain environment. They indicated that further monetary policy actions would be carefully
calibrated to incoming data. The RBI remains committed to maintaining the rupee’s flexible
exchange rate regime and using FX reserves only to address excessive market volatility. The
authorities confirmed their intention to gradually implement both a retail and a wholesale domestic
CBDC, which would provide the public with the benefit of virtual currencies while ensuring consumer
protection.
FINANCIAL SECTOR POLICIES TO MAINTAIN STABILITY

26. Financial sector policies provided important support to the corporate sector during
the pandemic.
• The pandemic-related policy response has eased the impact on corporates, but most
measures have now expired. Accommodative monetary policy and regulatory easing targeting
lenders and borrowers played a key role in supporting the financial sector and avoiding a credit
crunch. Initiatives included moratoria on loan repayments and credit guarantee schemes for
MSMEs. Banks also benefitted from loan restructuring schemes, and the deferment in the
implementation of the net stable funding ratio and the last tranche of the capital conservation
buffer. However, these measures have now expired, except for the government guarantees for
MSMEs that have been extended to March 2023 with additional funds allocated to firms in the
hospitality sector.
• These government guarantees can be unwound. Government guarantees successfully

sustained credit flow to viable MSMEs and only 2 percent of all guaranteed loans are currently
non-performing. However, given the strong recovery in bank credit and to contain the risk of
loan evergreening, a further extension of the scheme does not seem warranted.
27. Credit quality indicators have improved, reflecting stronger corporate and financial
sector balance sheets, but some vulnerabilities remain. Despite the expiration of the
pandemic-related support measures, banks have seen their non-performing asset (NPA) ratio
decrease, in part reflecting an increase in outstanding loans, and capital ratio increase over the last
fiscal year. The balance sheets of non-banking financial companies (NBFCs) have also improved.
These developments largely reflect the corporate sector recovery, as confirmed by the declining
leverage of listed firms and falling delinquency rates across sectors and borrower types. Stress tests
conducted by the RBI suggest that the financial sector would remain resilient even under an adverse
scenario; however, they also highlight that some banks and NBFCs may be vulnerable to liquidity
shocks due to existing duration mismatches. Moreover, banks, especially public ones, have
substantial unrealized bond portfolio losses at the beginning of a monetary policy tightening cycle.

INDIA
28. Policies need to further shift to facilitating the exit of non-viable firms, encouraging
banks to build capital buffers and recognize problem loans. Despite its decline, banks’
aggregate NPA ratio remains relatively high from an international perspective. To structurally
improve banks’ asset quality, incentives to recognize and address problem loans at an early stage
are crucial.
• Recent insolvency reforms have had a limited impact to-date. While reforms of the
Insolvency and Bankruptcy Code, which introduced “pre-pack” processes for MSMEs, were
expected to speed up resolutions and increase the recovery rate from bad loans, progress has
been slow, suggesting, inter alia, that additional resources may be needed to speed up
implementation.
• The impact of the National Asset Reconstruction Company Limited (NARCL) critically
depends on a timely implementation. The NARCL is expected to purchase Rs. 2 trillion (about
28 percent of total bank gross NPAs) of distressed assets, but no purchases had occurred as of
mid-September. 3 The initial purchases will cover fully provisioned NPA, with limited impact on
banks’ balance sheets. The delegation of the acquisition and management of distressed assets
to separate companies requires strong coordination. Clarifying the valuation approach for fully
provisioned NPAs and supporting the liquidity of NARCL-issued securities would facilitate
implementation.
29. The new scale-based regulatory framework is a welcome step to strengthen oversight
over NBFCs. This framework, which aims to further reduce potential regulatory arbitrage between
banks and NBFCs, will become effective in October 2022. The framework is based on a four-layered
classification based on NBFCs’ size and estimated importance in terms of systemic risks. Capital
requirements and credit concentration limits tighten with each layer, leading to a convergence in
terms of regulation between banks and NBFCs.
30. Existing pockets of vulnerabilities expose the financial sector to risks stemming from
tightening financial conditions. First, banks face an increase in credit risk with the rise in interest
rates, which could lead to higher NPAs as about 48 percent of bank loans are based on variable
interest rates. Second, banks are exposed to interest-rate risk because of the share of fixed-rate
loans and their large holdings of government bonds (about 22 percent of bank assets), which
contribute to a strong interconnection between the sovereign and banks. Third, some banks and
NBFCs are vulnerable to liquidity shocks at the same time as they face higher funding costs. Finally,
the increased exposure of banks to NBFCs (which account for about 8.5 percent of bank lending)
raises the likelihood that shocks to NBFCs may spread to other financial institutions.
31. Prudential measures would help address these risks. Higher capital buffers would
improve the resilience of the financial sector in the environment of rising interest rates. The
3
In February 2021 authorities announced the creation of the NARCL, which is 51 percent owned by public banks. The
NARCL would purchase NPAs with 15 percent of the sum paid in cash and 85 percent in tradable securities. The
government will guarantee Rs 306 billion against these securities, valid for 5 years.

INDIA
authorities should continue to promote prudent underwriting standards at banks and NBFCs given
for example the sharp increase in unsecured retail credit. The authorities could also consider
calibrating loan-to-value ratios or introducing debt-service-to-income limits to taper the issuance of
new variable-rate loans. Incentivizing banks to reduce their exposure to the public sector over time,
for instance by further reducing the regulatory incentives for banks to hold government securities,
would weaken the sovereign-bank linkages and could also support supply of credit to the private
sector. The resilience of NBFCs to adverse liquidity shocks could be further improved through
further strengthened supervision and regulation of exposures to liquidity risks, especially beyond
the current 30-day maturity horizon. To prevent idiosyncratic shocks from spreading, the limits on
bank exposure to NBFCs could be further tightened.
32. Digital advances have facilitated efficient payments and increased financial inclusion.
The public digital infrastructure and mobile banking have made opening a bank account and
obtaining a loan simpler and less costly, extended financial services to those in remote areas and
expanded the availability of instant payments. The recent introduction of offline and feature phone-
based payments will further support financial inclusion. The digital ecosystem has also facilitated
underwriting procedures, favoring the expansion in credit to MSMEs. The RBI has taken important
steps towards containing potential vulnerabilities stemming from digital banking. Recently issued
guidelines on digital lending impose greater transparency on loan conditions and prevent regulated
entities from accepting credit guarantees issued by unregulated financial technology companies.
33. Structural reforms in the financial sector are needed to further financial market
development and support medium-term growth.
• Public banks. Public banks continue to underperform their competitors along multiple
dimensions, including credit supply, profitability, and asset quality, which points to complex
governance and risk management challenges. As also recommended by the 2017 FSAP,
continuing to advance governance reforms and reducing the government’s footprint in the
financial sector through privatization remain priorities.
• Capital markets. Recent initiatives have contributed to capital market development and
additional efforts are underway. Digitalization has fueled domestic participation in equity
markets, while domestic startups are showing increasing interest in initial public offerings.
Ongoing initiatives to facilitate repo transactions and create a backstop facility could spur
greater participation in the bond market. Efforts to further develop domestic capital markets,
especially for corporate debt and climate financing, should continue.
• Climate risk. To inform its approach to climate risk, the RBI has been gathering feedback
through a survey among major banks and comments on a related discussion paper. The
feedback should contribute to shaping the regulatory and supervisory guidelines to address
climate risks in the financial sector.
• Other issues. The authorities should continue implementing the recommendations of the 2017
FSAP. The effectiveness of the AML/CFT framework should be enhanced further by addressing
residual gaps, including those related to domestic politically exposed persons and domestic tax
evasion becoming a predicate offence to money laundering. The authorities should continue
INDIA
enhancing the resolution and crisis management framework through the introduction of the
Financial Resolution and Deposit Insurance Bill. It is also important to further strengthen banking
supervision by reviewing loan classification and provisioning rules in the context of the
International Financial Reporting Standard, and amending the legal framework to provide the
RBI with full supervisory powers over public banks. Completing the introduction of a risk-based
solvency regime and risk-based supervision would strengthen supervision over insurance
companies.
34. The authorities highlighted the recovery of credit growth and the overall resilience of the
financial sector. While agreeing with the need to facilitate exit of non-viable firms, they highlighted that
focus on resolution rather than liquidation was a key distinguishing feature of India’s insolvency regime and
noted the continued focus on system-based identification of NPAs. The authorities assessed that risks
stemming from financial sector vulnerabilities are properly addressed. The authorities agreed that
digitalization will improve access to financial services. However, they stressed the importance of ensuring
that fintech advances are consistent with the regulatory framework. They have initiated a process to
transfer equity and management to private control in one bank and expect to identify two banks that will
be privatized when the necessary legislation is approved.
STRUCTURAL REFORMS FOR A GREEN AND INCLUSIVE

RECOVERY
35. Climate change and air pollution are reducing productivity, damaging vulnerable
regions and sectors, and contributing to serious health problems. India is witnessing
long-running trends of increasing temperature,
irregular precipitation. States most vulnerable to
these changes have seen slower growth. With
climate change set to accelerate, vulnerable
regions and sectors, including agriculture, forestry
and fishing, are likely to see greater damage. 4 In
addition to economic costs, both the impact of
climate change and pollution are causing
worsening health outcomes.
4
Hatton, Hasna, Mohaddes and Spray (forthcoming): “The Macroeconomic Consequences of Climate Volatility:
Evidence from India”.

INDIA
36. India is making important progress in implementing its climate agenda, including
through increasing the share of energy
production from renewables and improving
energy efficiency. India is targeting improved
energy efficiency through the sale of LEDs,
compulsory audits for energy intensive firms, and
improved consumer information about appliance
energy efficiency. Households are gradually
replacing traditional cooking biofuels with clean
fuels. Efforts are underway to clean the coal power
sector through enhancing the technical efficiency
of coal-fired power plants. From a low base,
modern renewables are the fastest growing source of domestic primary energy production driven by
state renewable purchase obligations which mandate minimum purchase levels of wind power, large
hydro power, and energy storage. The National Solar Mission includes production-linked-incentives
(PLI) schemes for batteries and solar panels which aims to bring down the cost of solar energy. Fiscal
incentives have been used in the transport sector to encourage the production and sale of electric
vehicles (EVs). India is also in the process of designing a carbon credit trading scheme which could
allow effective pricing of carbon emissions.
37. Building on this progress, additional efforts are needed to meet the authorities’
objectives to prepare for a transition to a carbon-neutral economy. The updated Nationally
Determined Contribution (NDC) target commits to lowering emissions intensity of GDP by
45 percent from 2005 levels and having 50 percent installed non-fossil fuel electric power capacity
by 2030. At COP26, India further committed to reach Net Zero by 2070. Although on track to meet
its NDC target, more ambitious policy efforts are needed to transition towards net-zero emissions
(Box 4). Possible alternative approaches include:
• Sectoral policies. Efforts could target market failures including the scale up of electricity
storage, better coordination of the flow of power between the state-owned power distribution
companies, and the roll out of nationwide charging infrastructure for EVs. 5
• Subsidies and taxes. Subsidies can boost renewable capacity by 2030 and the gradual move
towards carbon pricing or equivalent policies can lower the path of emissions towards the net
zero 2070 goal while still maintaining India’s development goals. These policies are estimated to
increase energy security and improve health outcomes.
• Adaptation policies. To address the fall-out from climate change, India can expand existing
social safety nets, invest in resilient infrastructure (including in water management systems), and
encourage research and development into climate resilient agriculture.
5
Dang, MacDonald, and Spray, (forthcoming): “A Framework for Climate Change Mitigation in India” discusses policy
challenges in power, manufacturing, transport, agriculture, and residential sectors.

INDIA
Such efforts will inevitably impose transition costs. India can help lead the world towards ambitious
climate goals while accommodating the differentiated responsibilities and capabilities among
countries. India is playing a leadership role through initiatives such as the International Solar Alliance
and the government’s Lifestyle for Environment campaign—a global call for ideas and actions at the
grassroots level to promote sustainable lifestyles. A global but differentiated minimum carbon price
floor, facilitated by agreement on climate financing and technology transfers, including to cover
adaptation costs, would be a possible way forward.
38. India’s digital infrastructure has Fintech Adoption Index, 2019

improved resilience to shocks, but the (%, fintech adopters as % of digitally active population)
China
pandemic showed that further

India
South Africa
Russia
Colombia
strengthening of health, education and

Peru
Netherlands
Mexico
social spending is also needed. During the

UK
Ireland
South Korea
Singapore
pandemic, digital infrastructure enabled a rapid

Hong Kong SAR*
Argentina
Chile
roll-out of transfers, facilitated the use of

Switzerland
Sweden
Germany
Brazil
telemedicine, and supported online education.

Australia
Spain
Italy
Canada
Relative to other groups, migrants and the

USA
Bel & Lux**
France
urban poor had limited access to social

Japan
0 20 40 60 80 100
protection initially. The roll out and integration
Sources: EY Global Fintech Adoption Survey based on usage of fintech payment, savings, investment, borrowing,
insurance, budget & financial planning services. *Hong Kong SAR of China **Belgium & Luxembourg
of the One-Nation, One Ration Card and

E-Shram National Database of Unorganized Workers aim to increase safety net portability. However,
the digital divide and different state-level benefits may impact coverage. To ensure universal
coverage, policy reforms should ensure portability of the safety net, improve financial and digital
literacy, and increase internet and smartphone access. 6 This should be combined with strengthened
consumer and data protection.
39. Further progress in the structural reform agenda is needed to address pandemic-
related output losses, reduce bottlenecks and maximize medium-term growth. Education
policies should support the catch up from pandemic-related learning losses, especially for lower-
income households, and focus on improving education outcomes (including literacy). Investment-
friendly policies, including continued infrastructure investment and easing FDI regulation, could help
support capital accumulation and raise potential growth. Increasing female labor force participation,
reducing youth unemployment, and reducing informality remain critical to support sustainable and
inclusive growth. These objectives can be met through swift implementation of past reforms, such as
the new labor codes (by states), and further reforms to ease administrative bottlenecks, support
formalization, and improve targeting of social benefits. Advancing agriculture and land reforms
remains important to increase efficiency and productivity and to address market distortions.
However, reforms may also have transition costs which may require targeted policy support.
6
Bhattacharya and Roy (2021). Intent to Implementation: Tracking India’s Social Protection Response to COVID-19.
World Bank Discussion Paper.

INDIA
Figure 2. India’s Green House Gas Emissions

India is the third largest GHG emitter, but has the lowest Energy used per unit output is slowly falling and is low
per capita emissions among the G20 countries compared to comparators
Traditional biofuels have been replaced by expanding grid Total GHG emissions from coal are rising and now make
electricity produced using coal, oil and renewables up around 70 percent of emissions
India should meet its NDC emissions target under current Pollution from burning fossil fuels is a major source of
policies premature deaths, and continues to grow

INDIA
40. Strengthening governance, the regulatory framework and the rule of law can reduce
scope for corruption, foster transparency and safeguard public accountability. The authorities
took welcome measures to enhance the
transparency of COVID-19 related spending, Corruption Perceptions Index
(Index, higher is better)
including on procurement. 7 IMF capacity 48
development in PFM to select states is supporting

India Asia Pacific BRICS
46
44
improved governance. Further improving PFM 42
and public procurement can mitigate governance 40
and corruption vulnerabilities (including 38
36
publication of beneficial ownership information 34
for awarded entities and of audits of emergency 32
spending). Digitalization efforts in government

30
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Sources: Transparency International and IMF staff calculations
service delivery, including in tax payments, Note: BRICS and Asia-Pacific show averages
contract enforcement and trading across borders,

have helped improve transparency, efficiency and reduced the scope for fraud. Broader efforts are
needed to strengthen the corporate regulatory framework and the rule of law to reduce corruption
and improve revenue outcomes. Measures could include reducing overlap in the regulatory system
to reduce compliance costs, improving the efficiency of the judicial system, and shortening
regulatory approval timelines. Broader use of single-window clearance to start a business and to pay
taxes can also help.
41. New trade agreements are welcome, but further tariff reduction could help deepen
integration in global value chains (GVCs). Recently signed trade agreements with the United Arab
Emirates (UAE) and Australia are expected to facilitate bilateral trade and investments. Free trade
agreements with other partners are being discussed. These agreements and the shift from direct
export promotion to the development of export infrastructure are expected to support an increase
in exports over the medium term. However, external tariff and non-tariff barriers remain elevated
and above those in regional peers. Reducing these barriers, including for intermediate goods, can
give a powerful boost to integration in GVCs (Appendix VIII). India has the potential to play a greater
role in strengthening the multilateral trading system thereby promoting trade policy certainty that is
important for investment and global growth. For example, India should continue to work actively
with other nations to strengthen WTO rules, support a functioning dispute settlement system, and
conclude new mutually beneficial WTO agreements, such as recent agreements on fisheries and
intellectual property rights waiver for COVID vaccines. Also, the authorities could phase out recently
introduced food export restrictions and further liberalize the rules for FDI and portfolio investments
as conditions allow, including by further increasing limits on external borrowing and widening the
scope of debt instruments available for foreign investors.
42. The authorities concurred that implementation of structural reforms will facilitate
sustainable medium-term growth and stressed the balance between achieving their climate
change targets and development needs. The authorities emphasized the cross-cutting role
digitalization has played in furthering social objectives, improving governance, and boosting
7 See the 2021 Article IV Staff Report.

INDIA
productivity, and noted the potential for the Open Network for Digital Commerce (ONDC) initiative
to transform e-commerce. They agreed with staff on the need to narrow the digital divide and highlighted
several initiatives taking place. Noting important challenges in measuring social outcomes, the authorities
expressed concerns about the data and methodologies, they stressed reforms in progress, including
state-level implementation of labor codes, and the expansion of PLI schemes to labor intensive and green
sectors. The authorities emphasized that their policies are sufficient to help India fight climate change whilst
balancing other key development goals. The authorities saw the Paris Agreement as an important step
forward but highlighted that implementation must be based on the principles of equity and common but
differentiated responsibilities and respective capabilities, as agreed to, and be accompanied by climate
financing and technology transfer. The authorities agreed that India will benefit from increasing trade
openness and noted substantial progress in FTA negotiations with several countries. They stressed that
they promote mutually beneficial agreements through the WTO that reinforce a rules-based trading
system.
OTHER ISSUES
43. Statistics and capacity development. Although macroeconomic statistics are adequate for
Fund surveillance, upgrading statistics would help policy formulation. As the post-pandemic
recovery continues, timely availability of quarterly general government fiscal data and expansion of
its coverage, labor market data, and updated CPI weights would help policy formulation,
implementation and coordination. The Fund’s capacity development activities have been scaled up
in recent years, underpinned by the government’s support to the South Asia Training and Technical
Assistance Center (SARTTAC). For example, the IMF is working with the authorities on improving
(volume and price) statistics and is providing tailored training on macro relevant topics. The IMF
stands ready to provide further capacity development support, including through SARTTAC and by
further integrating thematic areas that can help policy formulation.
44. The authorities reiterated their continued commitment to improving statistics and to
cooperation with the IMF. They particularly welcomed cooperation through SARTTAC and expect
to work closely with the Fund on priority topics such as digitalization and crypto assets during their
G20 presidency.
STAFF APPRAISAL
45. The economy has rebounded from the pandemic-related downturn but is facing new
headwinds. The authorities have appropriately responded with fiscal policy measures to support
vulnerable groups and to mitigate the impact of commodity price increases on the economy, as well
as with front-loaded monetary policy tightening to address elevated inflation. Growth is expected to
moderate somewhat this year and next, reflecting a less favorable external outlook and tighter
financial conditions. Reflecting broad-based price pressures, inflation is expected to decline only
gradually over the next two years. At the same time, the current account deficit is expected to
increase this year as a result of both higher commodity prices and strengthening import demand.
Uncertainty about the economic outlook is high, with risks tilted to the downside.

INDIA
46. While the additional support to vulnerable groups this year is warranted, policies
should now focus on a credible and clearly communicated fiscal consolidation. The slightly
contractionary fiscal stance this year, and further tightening in FY2023/24 is welcome. However,
baseline projections suggest only a gradual decline in the fiscal deficit over time, and while public
debt is expected to stabilize over the medium-term, debt sustainability risks have increased. A more
ambitious and well-communicated fiscal consolidation is therefore needed to ensure medium-term
fiscal sustainability. Policy efforts should be anchored on stronger revenue mobilization and
improving expenditure efficiency, while high-quality spending on infrastructure, education and
health should be protected. Further improvements in public financial management, fiscal institutions
and transparency would support consolidation. Digital public infrastructure has enabled the rapid
deployment of support during the pandemic and can be further harnessed to improve government
service delivery.
47. Additional monetary policy tightening is needed. The RBI has appropriately used both
liquidity management and interest rate tools to tighten monetary policy to address inflation
pressures. Additional policy rate tightening is needed and should be carefully calibrated and clearly
communicated to balance inflationary pressures and economic activity. The exchange rate should
act as the main shock absorber, with intervention limited to addressing disorderly market
conditions. The extent to which a phased implementation of both retail and wholesale CBDC can
complement the domestic payment system and facilitate cross-border transactions will depend
crucially on design features.
48. Corporate and financial sector balance sheets have improved, but risks stemming from
tightening financial conditions call for additional measures. Financial sector policies provided
important support during the pandemic. Credit quality indicators have improved, reflecting stronger
corporate and financial sector balance sheets. Financial sector policies should build on this progress
and continue to facilitate the exit of non-viable firms and encourage banks to build capital buffers
and recognize problem loans. Risks stemming from tightening financial conditions, including
potential for NPAs to increase with the rise in interest rates, could be mitigated through the use of
targeted prudential tools. Digital advances have facilitated efficient payments and increased
financial inclusion. Structural reforms, including to strengthen governance and reduce the
government’s footprint in the sector, are needed to further financial market development and
support medium-term growth.
49. Progress in the structural reform agenda will be needed to address pandemic-related
output losses, reduce bottlenecks, and maximize medium-term growth potential. Education
policies should support the catch up from pandemic-related learning losses while investment-
friendly policies could help support capital accumulation and raise potential growth. Increasing
female labor force participation, reducing youth unemployment, and reducing informality remain
critical to support sustainable and inclusive growth. The pandemic has highlighted the need to
strengthen health, education and social spending, and narrowing the digital divide through
improved digital access and literacy. Strengthening governance, the regulatory framework and the
rule of law can reduce scope for corruption, foster transparency and safeguard public accountability.
New trade agreements are welcome, but further tariff reduction could help deepen integration in
GVCs.

INDIA
50. India is making important progress in implementing its climate agenda, including
through increasing the share of energy production from renewables and improved energy
efficiency. Building on this progress, additional efforts, including sectoral policies, prudent use of
subsidies and taxes and adaptation policies, are needed to meet the authorities’ objectives to
prepare for a transition to a carbon-neutral economy. Such efforts will inevitably impose transition
costs. India can help lead the world towards more ambitious climate goals while accommodating
the differentiated responsibilities and capabilities among countries. A global but differentiated
minimum carbon price floor, facilitated by agreement on climate financing and technology transfers,
including to cover adaptation costs, would be a possible way forward.
51. It is recommended that the next Article IV consultation take place on the standard 12-
month cycle.

INDIA
Figure 3. Recent Macroeconomic Developments

Economic activities have recovered from the severe initial impact of the pandemic.
…with private consumption, investment and exports

Real GDP growth recovered...
rebounding in FY2021/22.
Industrial production, and manufacturing and services …and motor vehicle sales recovered gradually, but consumer
PMIs showed strong recovery in 2022Q.... credit remains below pre-pandemic.
Investment growth rebounded. and goods exports and imports also recovered.

INDIA
Figure 4. External Sector Developments

Despite return to a current account deficit and portfolio investment outflows, India’s external position remains sufficiently
strong to withstand near-term shocks.
Current account balance returned to deficits in FY2021/22 … and surging oil import costs reflecting both price increase and
on domestic demand recovery… rising domestic consumption.
Steady foreign direct investment and debt inflows supported …but multiple external shocks triggered large portfolio
financial account surpluses in 2020-21, investment outflows in 2022H1.
Low level of external debt compared to the peer

…and adequate FX reserves mitigate external vulnerabilities.
economies…

INDIA
Figure 5. Financial Markets Developments

External shocks are affecting financial markets conditions and volatility.
The Indian rupee came under depreciation pressure in 2022

…amid protracted portfolio investment outflows that reversed the
but performed better than some other emerging market
inflows of 2020-21.
currencies...
Stock market weakened in 2022H1 but was more resilient …while both short and long-term yields increased after monetary
than indices in peer countries… policy tightening.
Long-term bond yields increased in all BRICS countries but The REER in 2019-22 moved in a tight range despite rupee’s
China in 2022. nominal depreciation against US$.

INDIA
Figure 6. Monetary Sector Developments

Broad-based inflation pressures from food, commodity and core persist.
Inflation has remained above the RBI’s upper band, with …and inflation recently rose in line with the level of G-20 peers,
sticky core ... partly reflecting global shocks.
Inflation expectations stabilized in recent months… ...while food and commodity prices remained high.
Monetary tightening cycle has commenced, aided by ...resulting in some early reversal of significant pandemic-
higher policy rates and liquidity absorption, related easing.

INDIA
Figure 7. Fiscal Sector Developments

The fiscal deficit narrowed in FY2021/22, following a sharp widening at the start of the COVID-19 pandemic.
…driven by lower expenditure, as pandemic-related

The deficit narrowed in FY2021/22…
measures are phased out…
… and revenues recovered. Subsidies fell but remain elevated…
…while higher interest expenses persist. Capital spending exceeded its pre-pandemic average.

INDIA
Figure 8. Corporate and Banking Sector Developments

The policy response supported the recovery of the corporate and financial sectors, but weaknesses persist.
Pandemic-related measures contributed to improving the …and ensured a continued credit flow to households and
health of firm balance sheets….... MSMEs.
The ongoing recovery in bank credit is common across

...but lending by public banks remains subdued.
sectors…
Despite declining recently, NPAs remain high … …and capital buffers have increased.

INDIA
Table 1. India: Selected Social and Economic Indicators, 2018/19-2023/24 1/

I. Social Indicators
GDP (2021/22) Poverty (percent of population)

Nominal GDP (in billions of U.S. dollars): 3,176 Headcount ratio at $1.90 a day (2011): 22.5
GDP per capita (U.S. dollars) (IMF staff est.): 2,302 Undernourished (2019) 15.3
Population characteristics (2020/21) Income distribution (2011, WDI)
Total (in billions): 1.38 Richest 10 percent of households: 30.1
Urban population (percent of total): 34.9 Poorest 20 percent of households: 8.1
Life expectancy at birth (years, 2019/20): 69.9 Gini index (2011): 35.7
II. Economic Indicators
2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Est. Projections
Growth (in percent)

Real GDP (at market prices) 6.5 3.7 -6.6 8.7 6.8 6.1
Consumer prices - Combined 3.4 4.8 6.2 5.5 6.9 5.1
Gross saving 2/ 30.2 29.4 28.8 30.0 29.4 30.1
Gross investment 2/ 32.3 30.2 27.9 31.2 32.8 33.0
Fiscal position (percent of GDP) 3/
Central government overall balance -3.9 -4.8 -8.6 -6.7 -6.5 -6.2
General government overall balance -6.4 -7.5 -12.8 -10.0 -9.9 -9.0
General government debt 4/ 70.4 75.1 89.2 84.2 83.5 83.9
Cyclically adjusted balance (% of potential GDP) -6.8 -7.4 -8.7 -8.3 -8.5 -8.3
Cyclically adjusted primary balance (% of potential GDP) -2.0 -2.6 -3.8 -3.3 -3.2 -2.7
Broad money 10.5 8.9 12.2 8.8 8.9 9.0
Domestic Credit 11.8 8.3 9.5 9.0 13.6 11.4
Financial indicators (percent, end-period)
91-day treasury bill yield (end-period) 6.1 4.4 3.3 3.8 … …
10-year government bond yield (end-period) 7.4 6.1 6.2 6.8 … …
Stock market (y/y percent change, end-period) 17.3 -23.8 68.0 18.3 … …
External trade (on balance of payments basis)
Merchandise exports (in billions of U.S. dollars) 337.2 320.4 296.3 429.2 450.3 462.8
Merchandise imports (in billions of U.S. dollars) 517.5 477.9 398.5 618.6 737.7 769.6
Terms of trade (G&S, annual percent change) -1.8 1.5 1.6 -8.1 -2.8 2.2
Balance of payments (in billions of U.S. dollars)
(In percent of GDP) -2.1 -0.9 0.9 -1.2 -3.5 -2.9
Foreign direct investment, net ("-" signifies inflow) -30.7 -43.0 -44.0 -38.6 -47.7 -52.6
Portfolio investment, net (equity and debt, "-" = inflow) 2.4 -1.4 -36.1 16.8 -8.2 -18.0
Overall balance ("+" signifies balance of payments surplus) -3.3 59.5 87.3 47.5 -20.1 17.8
External indicators
Gross reserves (in billions of U.S. dollars, end-period) 412.9 477.8 577.0 607.3 540.5 558.3
(In months of next year's imports (goods and services)) 8.2 11.1 9.0 7.9 6.7 6.5
External debt (in billions of U.S. dollars, end-period) 543.1 558.4 573.7 619.6 669.1 742.5
External debt (percent of GDP, end-period) 20.1 19.7 21.5 19.5 19.6 19.8
Of which: Short-term debt 8.7 8.4 8.8 8.6 8.6 8.9
Ratio of gross reserves to short-term debt (end-period) 1.8 2.0 2.4 2.2 1.8 1.7
Real effective exchange rate (annual avg. percent change) -4.7 3.0 -0.9 0.3 … …
Memorandum item (in percent of GDP)
Fiscal balance under authorities' definition -3.4 -4.7 -9.2 -6.7 -6.4 -6.2
Sources: Data provided by the Indian authorities; Haver Analytics; CEIC Data Company Ltd; Bloomberg L.P.; World Bank, World Development Indicators ; and IMF staff estimates
and projections.
1/ Data are for April–March fiscal years.
2/ Differs from official data, calculated with gross investment and current account. Gross investment includes errors and omissions.
3/ Divestment and license auction proceeds treated as below-the-line financing.
4/ Includes combined domestic liabilities of the center and the states, and external debt at year-end exchange rates.

INDIA
Table 2. India: Balance of Payments, 2018/19-2023/24 1/
2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Est. Projections
(In billions of U.S. dollars)
Merchandise trade balance -180.3 -157.5 -102.2 -189.5 -287.4 -306.8
Merchandise exports 337.2 320.4 296.3 429.2 450.3 462.8
Merchandise imports 517.5 477.9 398.5 618.6 737.7 769.6
Oil 2/ 140.9 130.6 82.7 161.8 214.6 199.0
Non-oil 376.6 347.4 315.8 456.8 523.0 570.6
Services balance 81.9 84.9 88.6 107.5 124.2 139.2
Credit 208.0 213.2 206.1 254.5 303.7 338.0
Of which : Software Services 83.5 93.1 100.0 122.1 … …
Debit 126.1 128.3 117.5 147.0 179.4 198.8
Primary income balance, net -28.9 -27.3 -36.0 -37.3 -43.0 -37.8
Secondary income balance, net 70.0 75.3 73.6 80.5 87.8 95.7
Capital and Financial account balance -57.8 -24.7 22.6 -38.4 -118.5 -109.8
Direct investment, net -30.7 -43.0 -44.0 -38.6 -47.7 -52.6
Of which : Net incurrence of liabilities 43.3 56.0 54.9 56.2 64.7 71.3
Portfolio investment, net 2.4 -1.4 -36.1 16.8 -8.2 -18.0
Financial derivatives, net -1.0 -4.1 4.8 6.4 6.8 7.1
Other Investment, net -25.2 -35.6 10.6 -70.5 -49.4 -64.2
Reserve Assets, net -3.3 59.5 87.3 47.5 -20.1 17.8
Errors and omissions -0.5 1.0 -0.3 0.5 0.0 0.0
Overall balance 3/ 3.3 -59.5 -87.3 -47.5 20.1 -17.8
Valuation changes 4/ -8.3 5.4 11.9 -17.2 -46.8 0.0
Increase in gross reserve stock

(including valuation changes) -11.7 64.9 99.2 30.3 -66.9 17.8
Memorandum items:
Foreign exchange reserves 412.9 477.8 577.0 607.3 540.5 558.3
In months of next year's imports (goods and services) 8.2 11.1 9.0 7.9 6.7 6.5
Current account balance (percent of GDP) -2.1 -0.9 0.9 -1.2 -3.5 -2.9
Merchandise trade balance (percent of GDP) -6.7 -5.6 -3.8 -6.0 -8.4 -8.2
Direct investment in India (percent of GDP) 1.6 2.0 2.1 1.8 1.9 1.9
Overall balance (percent of GDP) 0.1 -2.1 -3.3 -1.5 0.6 -0.5
Gold imports (billions of U.S. dollars) 31.8 31.2 22.0 55.8 … …
Gross domestic product (billions of U.S. dollars) 2,703 2,832 2,668 3,176 3,405 3,754
Sources: CEIC Data Company Ltd; Haver Analytics; and IMF staff estimates and projections.
1/ Data are for April-March fiscal years, based on BPM6, including sign conventions.
2/ Projection for 2022/23 takes into account lower costs of oil imports due to availability of the discounted oil from Russia.
3/ Positive sign "+" signifies balance of payments deficit.
4/ Calculated as difference between the stock of reserves and the overall balance of BOP. For 2022/23, projected as 67 percent of the
decrease in the stock of reserves from end-March to end-September 2022.

INDIA
Table 3. India: Reserve Money and Monetary Survey, 2018/19- August 2022/23 1/
2018/19 2019/20 2020/21 2021/22 2022/23

August
Reserve money (In billions of rupees, end-period)

Reserve money 27,705 30,297 36,000 40,689 40,596
Net domestic assets of RBI -781 -5,607 -5,994 -3,736 -2,641
Claims on government (net) 8,020 9,922 10,997 14,506 11,035
Center 8,005 9,897 10,963 14,490 10,987
States 15 25 33 16 48
Claims on commercial sector 154 132 87 166 330
Claims on banks 1,374 -2,141 -3,781 -5,603 -1,199
Other items (net) -10,328 -13,520 -13,297 -12,805 -12,806
Net foreign assets of RBI 28,486 35,904 41,994 44,425 43,237
(Contribution to twelve-month reserve money growth)
Reserve money 14.5 9.4 18.8 13.0 10.3

Net domestic assets of RBI 10.9 -17.4 -1.3 6.3 15.5
Claims on government (net) 13.5 6.9 3.5 9.7 -2.4
Net foreign assets of RBI 3.6 26.8 20.1 6.8 -5.2
Monetary survey (In billions of rupees, end-period)
Broad money (M3) 154,321 168,000 188,446 204,937 210,514

Currency with public 20,522 23,497 27,518 30,357 30,625
Deposits 133,481 144,117 160,454 173,996 179,318
Non-bank deposits at RBI 317 385 474 584 572
Net domestic assets 123,612 129,989 142,657 156,397 163,162
Domestic credit 147,712 159,990 175,188 190,941 196,779
Net credit to government 43,885 49,604 58,504 64,776 64,713
Of which: RBI 8,020 9,922 10,997 14,506 11,035
Credit to commercial sector 103,827 110,386 116,685 126,165 132,066
Of which: Bank credit (excluding RBI) 103,674 110,255 116,598 126,000 131,737
Other items (net) -24,100 -30,001 -32,531 -34,545 -33,618
Net foreign assets 30,708 38,010 45,788 48,541 47,352
(Twelve-month percent change)
Broad money (M3) 10.5 8.9 12.2 8.8 8.9

Net domestic assets 12.0 5.2 9.7 9.6 12.7
Domestic credit 11.8 8.3 9.5 9.0 11.2
Net credit to government 9.7 13.0 17.9 10.7 6.4
Credit to commercial sector 12.7 6.3 5.7 8.1 13.8
Of which: Bank credit (excluding RBI) 12.7 6.3 5.8 8.1 13.6
Net foreign assets 5.1 23.8 20.5 6.0 -2.5
Sources: CEIC Data Company Ltd.; Reserve Bank of India WSS; IMF IFS, and Fund staff calculations.
1/ Data are for April–March fiscal years, unless indicated otherwise.

INDIA
Table 4. India: Central Government Operations 1/, 2018/19-2023/24
2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Est. Projections
(In percent of GDP)
Revenue 8.4 8.6 8.4 9.3 8.6 8.6
Taxes 2/ 6.9 6.8 7.2 7.7 7.6 7.6
Income tax 6.0 5.2 4.8 5.9 6.0 6.0
GST 3.1 3.0 2.8 3.0 3.1 3.1
Excise tax 1.2 1.2 2.0 1.7 1.1 1.1
Customs duties 0.6 0.5 0.7 0.8 0.7 0.7
Other taxes 0.0 0.0 0.0 0.1 0.0 0.0
Less: States' share 4.0 3.2 3.0 3.7 3.3 3.4
Grants 0.0 0.0 0.0 0.0 0.0 0.0
Other revenue 3/ 1.4 1.8 1.2 1.6 1.0 1.0
Property income 0.7 1.0 0.6 0.8 0.3 0.3
Sale of goods and services 0.2 0.2 0.2 0.2 0.2 0.2
Miscellaneous and unidentified revenue 0.6 0.6 0.5 0.7 0.5 0.5
Expenditure 12.3 13.4 17.0 16.0 15.1 14.8
Expense 4/ 10.6 11.7 14.8 13.5 12.5 12.5
Compensation of employees 5/ 1.1 1.1 1.1 1.0 1.0 1.0
Interest 3.1 3.0 3.4 3.4 3.5 3.7
Subsidies 6/ 1.0 1.1 2.8 1.9 2.0 1.6
Food 7/ 0.5 0.5 2.0 1.2 1.2 0.9
Fertilizer 0.4 0.4 0.6 0.6 0.8 0.7
Petroleum 0.1 0.2 0.2 0.0 0.0 0.0
Grants and other expense 5.4 6.4 7.5 7.2 6.0 6.1
Grants 2.2 2.3 2.9 2.8 2.4 2.4
Other expense 8/ 3.2 4.1 4.5 4.4 3.5 3.7
Net acquisition of nonfinancial assets 1.6 1.7 2.2 2.5 2.5 2.3
Gross Operating Balance -2.3 -3.1 -6.4 -4.2 -4.0 -3.9
Net lending / borrowing (overall balance) -3.9 -4.8 -8.6 -6.7 -6.5 -6.2
Memorandum items:
Balance under authorities' definition 9/ -3.4 -4.7 -9.2 -6.7 -6.4 -6.2
Central government debt 10/ 49.3 52.3 62.3 59.2 58.4 58.7
Sources: Data provided by the Indian authorities; and Fund staff estimates and projections.
1/ Data for April - March fiscal years
2/ Net tax revenue, defined as gross tax revenue collected by the central government minus state governments' share.
3/ Auctions for wireless spectrum are classified as non-tax revenues.
4/ Includes the surcharge on Union duties transferred to the National Calamity Contingency Fund.
5/ Pensions are included under expense not otherwise classified.
6/ Includes subsidy-related bond issuance.
7/ Starting in FY2020/21, includes food subsidies covered by the Food Corporation of India. For FY2020/21, excludes retroactive payment
to Food Corporation of India for previous years' food subsidy bill.
8/ Other expense includes purchases of goods and services.
9/ Includes asset sales in receipts, and excludes certain non-tax revenue items. Includes the retroactive payment to Food
corporation of India for previous years' foof subsidy bill.
10/ Central government debt includes SDR, and for FY2021/22 reflects the additional SDR allocation of about 0.6 percent of
GDP.

INDIA
Table 5. India: General Government Operations, 2018/19-2023/24 1/
2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Est. Projections
(In percent of GDP)
Revenue 20.0 19.9 18.3 20.2 19.0 19.2
Taxes 17.4 17.0 16.2 17.5 17.0 17.2
Grants 0.0 0.0 0.0 0.0 0.0 0.0
Other revenue 2.5 3.0 2.1 2.7 2.0 2.0
Expenditure 26.3 27.4 31.1 30.1 28.9 28.3
Expense 22.3 23.5 27.0 25.6 24.2 23.8
of which: interest 4.8 4.8 5.3 5.2 5.4 5.6
Gross Operating Balance -2.4 -3.5 -8.7 -5.4 -5.2 -4.5
Net lending (+)/borrowing (–) (fiscal balance) -6.4 -7.5 -12.8 -10.0 -9.9 -9.0
Net financial worth, transactions -6.4 -7.2 -12.8 -10.0 -9.9 -9.0
Net acquisition of financial assets -1.1 -1.6 -1.5 -1.7 -1.2 -1.0
Domestic -1.1 -1.6 -1.5 -1.7 -1.2 -1.0
Currency and deposits -0.8 -1.3 -2.5 -2.6 -1.6 -1.5
Loans 0.1 -0.1 1.2 1.0 0.6 0.6
Equity and investment fund shares -0.4 -0.3 -0.2 -0.1 -0.2 -0.1
Net incurrence of liabilities 5.3 5.5 11.2 8.3 8.7 8.0
Domestic 5.3 5.5 10.9 8.2 8.6 8.0
Debt securities 4.6 3.7 8.6 6.5 7.0 6.4
Other accounts payable 0.7 1.8 2.3 1.6 1.7 1.6
Foreign 0.0 0.0 0.4 0.2 0.1 0.1
Loans 0.0 0.0 0.4 0.2 0.1 0.1
Memorandum items:
Primary balance -1.6 -2.7 -7.5 -4.8 -4.5 -3.4
Nondefence capital expenditure 3.5 3.4 3.3 3.9 4.1 4.0
State and union territory governments' balance 2/ -2.5 -2.7 -4.2 -3.3 -3.4 -2.8
General government debt 70.4 75.1 89.2 84.2 83.5 83.9
Nominal GDP in billions of Rupees 188,997 200,749 198,009 236,646 273,112 307,114
Sources: Data provided by the Indian authorities; state level data from the RBI Study on State Finances (2021); and
Fund staff estimates and projections.
1/ The consolidated general government comprises the central government (CG) and state governments. It does not
include lower tiers of government (districts, municipalities), contrary to GFSM 2014 standards. Data for April-March
fiscal years.
2/ The authorities treat states' divestment proceeds, including land sales, above-the-line as miscellaneous capital
receipts. IMF Staff definition treats divestment receipts as agbelow-the-line financing item. g
external debt at year-end exchange rates. For FY2021/22 reflects the additional SDR allocation of about 0.6 percent of
GDP.

INDIA
Table 6. India: Macroeconomic Framework, 2018/19-2027/28 1/

2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28
Est. Projections
Growth (percent change)

Real GDP (at market prices) 6.5 3.7 -6.6 8.7 6.8 6.1 6.8 6.8 6.5 6.2
Potential GDP 6.2 5.9 0.5 4.5 5.2 5.7 6.1 6.1 6.0 6.0
Output gap (in percent of potential GDP) 1.7 -0.4 -7.4 -3.7 -2.2 -1.9 -1.2 -0.6 -0.1 0.0

Consumer prices 3.4 4.8 6.2 5.5 6.9 5.1 4.4 4.1 4.0 4.0

Gross saving 2/ 30.2 29.4 28.8 30.0 29.3 30.1 30.6 30.9 30.9 31.1
Gross investment 3/ 32.3 30.2 27.9 31.2 32.8 33.0 33.3 33.5 33.6 33.7

Broad money 10.5 8.9 12.2 8.8 8.9 9.0 8.6 9.6 10.7 11.1
Bank credit to the private sector 12.7 6.3 5.7 8.1 14.5 11.9 10.2 11.6 13.2 13.3
Fiscal position (percent of GDP)

Central government balance 4/ -3.9 -4.8 -8.6 -6.7 -6.5 -6.2 -5.7 -5.2 -4.9 -4.8
General government balance 4/ -6.4 -7.5 -12.8 -10.0 -9.9 -9.0 -8.5 -7.9 -7.5 -7.3
General government debt 5/ 70.4 75.1 89.2 84.2 83.4 83.8 84.1 83.8 83.4 83.0
External trade (percent change, balance of payments basis)

Merchandise exports (in U.S. dollars terms) 9.1 -5.0 -7.5 44.8 4.9 2.8 6.9 6.4 5.6 5.4
Merchandise imports (in U.S. dollars terms) 10.3 -7.6 -16.6 55.3 19.2 4.3 6.5 7.0 6.8 6.3
Balance of payments (in billions of U.S. dollars, BMP6

(including sign conventions))
Current account balance -57.2 -24.5 24.0 -38.7 -120.6 -112.4 -110.0 -118.9 -131.1 -140.6
(in percent of GDP) -2.1 -0.9 0.9 -1.2 -3.5 -2.9 -2.6 -2.6 -2.6 -2.6
Foreign direct investment, net ("-" sign is net FDI inflow) -30.7 -43.0 -44.0 -38.6 -48.6 -53.5 -58.4 -63.7 -69.3 -75.1
Portfolio investment, net ("-" sign denotes capital inflow) 2.4 -1.4 -36.1 16.8 -8.3 -18.3 -25.0 -27.3 -29.7 -32.2
Overall balance ("+" sign denotes surplus) -3.3 59.5 87.3 47.5 -46.0 -10.9 13.9 26.6 40.9 63.7
External indicators
Gross reserves (in billions of U.S. dollars, end-period) 412.9 477.8 577.0 607.3 547.1 536.2 550.1 576.7 617.7 681.4
(in months of imports) 6/ 8.2 11.1 9.0 8.0 6.8 6.2 5.9 5.8 5.7 5.9
External debt (in billions of U.S. dollars, end-period) 509.8 557.6 556.8 603.4 671.7 746.8 829.3 919.9 1,019.1 1,127.4
External debt (percent of GDP, end-period) 20.1 19.7 20.9 19.0 19.4 19.5 19.9 20.2 20.6 21.0
Of which : short-term debt 7/ 8.7 8.4 8.8 8.6 8.5 8.8 9.1 9.4 9.7 10.0
Ratio of gross reserves to short-term debt (end-period) 7/ 1.8 2.0 2.4 2.2 1.9 1.6 1.5 1.3 1.3 1.3
GDP in billions of U.S. dollars 2,703 2,832 2,668 3,176 3,469 3,821 4,170 4,547 4,947 5,366
Sources: Data provided by the Indian authorities; CEIC Data Company Ltd; and IMF staff estimates and projections.
1/ Data are for April-March fiscal years unless otherwise mentioned.
2/ Differs from official data, calculated with gross investment and current account.
3/ Statistical discrepancy adjusted.
4/ Divestment and license auction proceeds are treated as financing; includes subsidy related bond issuance.
5/ Includes combined domestic liabilities of the center and the states, inclusive of MSS bonds, and sovereign external debt at year-end exchange rates.
6/ Imports of goods and services projected over the following twelve months.
7/ Including short-term debt on contracted maturity basis, all NRI deposits, and medium and long-term debt on residual maturity basis, different from authorities'
definition.

INDIA
Table 7. India: Indicators of External Vulnerability, 2018/19-2021/22 1/
2018/19 2019/20 2020/21 2021/22
Financial indicators
General government debt (percent of GDP) 70.4 75.1 89.2 84.2
Broad money (percent change, 12-month basis) 10.5 8.9 12.2 8.8
Private sector credit (percent change, 12-month basis) 12.7 6.3 5.7 8.1
91 day T-bill yield (percent; end-period) 6.1 4.4 3.3 3.8
91 day T-bill yield (real, percent; end-period) 2/ 2.7 -0.4 -2.9 -1.7
External indicators
Exports (percent change, 12-month basis in US$) 3/ 9.1 -5.0 -7.5 44.8
Export volume (percent change, 12-month basis) 3/ 5.1 -2.1 -6.3 20.3
Imports (percent change, 12-month basis in US$) 3/ 10.3 -7.6 -16.6 55.3
Import volume (percent change, 12-month basis) 3/ 4.7 -4.4 -14.0 20.5
Terms of trade (percent change, 12 month basis) 3/ -1.8 1.5 1.6 -8.1
Current account balance (percent of GDP) -2.1 -0.9 0.9 -1.2
Capital and financial account balance (percent of GDP, "-" sign for inflow) -2.1 -0.8 0.9 -1.2
Of which : Net portfolio investment (debt and equity, "-" sign for inflow) 0.1 0.0 -1.4 0.5
Other investment (loans, trade credits, etc., "-" sign for inflow) 0.9 1.4 -0.6 2.0
Net foreign direct investment ("-" sign denotes inflow) -1.1 -1.5 -1.6 -1.2
Foreign currency reserves (in billions of U.S. dollars) 412.9 477.8 577.0 607.3
Official reserves (in months of prospective imports of goods and services) 8.2 11.1 9.0 7.9
Ratio of foreign currency reserves to broad money (percent) 18.6 21.1 21.5 21.7
Total short-term external debt to reserves (percent) 4/ 56.9 50.0 40.9 44.9
Total external debt (percent of GDP) 20.1 19.7 21.5 19.5
Of which: public sector debt 2.9 2.9 3.5 3.1
Total external debt to exports of goods and services (percent) 99.6 104.7 114.2 90.6
External interest payments to exports of goods and services (percent) 3.2 2.8 1.7 1.5
External amortization payments to exports of goods and services (percent) 23.4 25.0 27.2 22.4
Exchange rate (Indian rupees per U.S. dollar, annual average) 69.9 70.9 74.2 74.5
REER (percent change; based on annual average level) -4.7 3.0 -0.9 0.3
Financial market indicators

Stock market index (end-period) 38,673 29,468 49,509 58,569
Foreign currency debt rating
Moody's Investor Services Baa2 Baa2 Baa3 Baa3
Standard and Poor's BBB- BBB- BBB- BBB-
Fitch Ratings BBB- BBB- BBB- BBB-
Spread of benchmark bonds (basis points, end of period) 5/ 494.6 547.0 443.3 471.6
Sources: Data provided by the Indian authorities; Bloomberg L.P.; CEIC Data Company Ltd.; IMF, Information Notice System and staff
estimates and projections.
1/ Data for April-March fiscal years.
2/ Equals nominal yield minus actual CPI inflation.
3/ Terms of trade including goods and services. Goods volumes are derived from partner country trade price deflators, and
services volumes are derived using U.S. CPI from the WEO database.
4/ Including short-term debt on contracted maturity basis, all NRI deposits, and medium and long-term debt on residual maturity
basis, different from authorities' definition.
5/ 10-year sovereign bond spread over U.S. bond.

INDIA
Table 8. India: Financial Soundness Indicators, 2018/19-2021/22

2018/19 2019/20 2020/21 2021/22
(In percent, unless indicated otherwise)
I. Scheduled commercial banks
Risk-weighted capital adequacy ratio (CAR) 14.3 14.8 16.3 16.9
Public sector banks 12.2 12.9 14.0 14.6
Private sector banks 16.1 16.5 18.4 18.8
Foreign banks 19.4 17.7 19.5 19.8
Number of institutions not meeting 9 percent CAR 2 2 1 …

Public sector banks 1 1 0 …
Private sector banks 1 1 1 …
Foreign banks 0 0 0 …
Net nonperforming assets (percent of outstanding net advances) 1/ 3.7 2.8 2.4 1.7
Foreign banks 0.5 0.5 0.6 0.7
Gross nonperforming assets (percent of outstanding advances) 9.1 8.2 7.3 5.8
Return on assets 2/ -0.2 0.1 0.7 0.9

Public sector banks -0.7 -0.3 0.3 0.5
Balance sheet structure of all scheduled commercial banks

Total assets (in percent of GDP) 87.3 88.6 99.2 …
Loan-to-deposit ratio 79.9 78.1 73.1 74.3
Government securities/total assets 19.8 20.1 21.6 20.8
II. Non-Banking Financial Companies 3/

Total assets (in percent of GDP) 15.1 16.6 17.6 …
Risk-weighted capital adequacy ratio (CAR) 20.1 23.7 25.0 26.8
Gross nonperforming assets (percent of outstanding advances) 6.1 6.8 6.4 6.3
Net nonperforming assets (percent of outstanding net advances) 1/ 3.3 3.4 2.7 2.3
Return on assets 2/ 1.7 1.3 1.8 1.8
Source: Reserve Bank of India; Bankscope; and IMF staff estimates.

1/ Gross nonperforming assets less provisions.
2/ Net profit (+)/loss (-) in percent of total assets.

3/ There were 9,680 NBFCs registered with the RBI as on September 30, 2021.

INDIA
Table 9. India: High Frequency Economic Activity Indicators
2021 2022
% y-o-y
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Consumption
Urban Domestic passenger vehicle sales 162.5 119.3 44.7 7.6 -41.2 -27.1 -18.6 -13.3 -8.1 -6.5 -3.9 -3.8 185.1 19.1 11.1 21.1 92.0
Aviation: Passenger traffic 105921.3 608.7 53.8 136.4 132.6 76.5 68.7 65.5 53.3 -16.2 -1.0 37.7 87.8 474.7 247.9 97.9 54.9 49.0
Consumer durables 1778.2 80.4 28.0 19.4 11.1 1.6 -3.2 -5.7 -1.9 -4.4 -9.7 -3.1 7.2 59.1 25.1 2.3 -2.5
Unemployment: Urban[1][2] 9.8 14.7 10.1 8.3 9.8 8.6 7.4 8.2 9.3 8.1 7.6 8.3 9.2 8.2 7.3 8.2 9.6 7.7
Rural Domestic two-wheeler sales 26.1 4.0 -2.1 -14.6 -17.4 -24.9 -34.4 -10.8 -21.1 -27.3 -20.9 15.4 255.3 24.0 10.2 17.0 13.5
Tractor sales 480.8 -2.4 22.1 8.2 -9.8 -9.5 3.2 -16.7 -22.5 -27.8 -26.4 -11.6 38.1 47.7 -10.9 -12.2 -1.0 18.9
Cosumer non-durables 92.6 0.2 -3.9 -2.3 5.9 -0.1 0.7 -0.8 0.3 3.1 -6.8 -4.4 -0.8 1.4 3.0 -2.8 -9.9
Unemployment: Rural [1][2] 7.1 10.6 8.8 6.3 7.6 6.0 7.9 6.4 7.3 5.8 8.4 7.2 7.2 6.6 8.1 6.2 7.7 5.8
Rural wages (male) 1.3 0.4 1.5 3.4 5.1 5.6 5.2 5.3 5.0 5.2 5.3 5.5 5.6 5.9 6.0 6.2
Overall Consumer credit 12.4 12.8 12.2 11.9 12.8 12.5 12.0 11.8 14.3 12.3 12.7 12.6 14.5 16.3 18.1 18.8 19.5
Consumer confidence [3] 48.5 48.6 57.7 62.3 64.4 71.7 75.9 77.3 80.6
Investment
Production of capital goods 1028.6 74.9 27.3 30.3 20.0 3.3 -1.6 -2.6 -3.0 1.8 1.3 2.4 12.0 53.3 29.1 5.7 5.0
Railway traffic: Net tonne km 87.1 55.8 27.2 21.5 20.1 9.0 20.6 14.3 8.3 11.4 10.9 11.1 17.7 21.0 19.3 17.5 15.7 10.3
Government Capex (YTD) 51.1 32.8 35.5 27.7 34.5 40.7 33.3 21.5 30.6 -5.8 -2.9 72.5 71.1 71.7 64.9 67.3 57.2 47.5
External sector
Merchandise exports 202.7 68.3 47.9 49.7 46.3 22.7 43.4 34.6 44.3 27.9 34.5 26.4 29.2 20.9 30.4 8.2 1.6 4.8
Merchandise exports (ex-oil) 204.1 54.8 42.4 35.1 37.4 19.0 30.1 19.2 30.7 20.7 20.2 9.9 17.5 13.3 11.1 1.5 -11.5 -2.1
Merchandise imports 169.5 69.9 97.5 62.0 53.0 85.7 57.4 56.8 40.5 25.1 37.2 29.0 30.9 62.9 57.6 43.6 37.3 8.7
Merchandise imports (ex-oil, ex-gold) 133.8 48.7 93.0 46.5 49.8 44.0 33.4 39.4 36.8 33.8 35.6 43.5 32.4 32.5 38.9 44.7 40.4 20.5
Services exports 9.8 6.5 19.4 13.7 24.4 25.0 22.8 21.0 38.8 24.5 19.4 29.6 33.2 40.7 32.6 20.2 24.3
Services imports 3.4 0.1 8.8 13.4 23.6 24.1 22.2 24.8 29.9 34.0 25.0 25.2 46.1 52.8 45.5 22.3 27.1
Change in FX reserves (USDbn) 9.4 8.0 14.6 7.1 2.6 -4.8 4.0 -2.6 -5.1 -3.2 -0.4 -25.6 -9.5 7.5 -13.1 -14.0 -12.9 -25.8
Manufacturing new export orders PMI[3] 54.9 53.6 48.8 54.8 50.6 51.5 52.6 51.7 51.3 51.1 51.6 48.4 54.2 57.1 54.9 52.6 53.9 55.2
[3]
Service new export orders PMI 44.0 37.0 40.4 40.5 40.0 39.5 46.3 45.1 44.6 47.7 44.2 42.1 40.2 41.7 43.5 44.9 43.0 47.0
Inflation
CPI 4.2 6.3 6.3 5.6 5.3 4.3 4.5 4.9 5.7 6.0 6.1 7.0 7.8 7.0 7.0 6.7 7.0 7.4
Food [4] 2.0 5.0 5.1 4.0 3.1 0.7 0.8 1.9 4.0 5.4 5.9 7.7 8.3 8.0 7.7 6.7 7.6 8.6
Core 5.3 6.6 6.1 5.8 5.8 5.9 6.0 6.1 6.1 6.0 5.9 6.4 7.1 5.9 6.0 6.0 5.9 6.0
Rural 3.8 6.5 6.2 5.5 5.3 4.1 4.1 4.3 5.4 6.1 6.4 7.7 8.4 7.1 7.1 6.8 7.2 7.6
Urban 4.7 5.9 6.4 5.8 5.3 4.6 5.0 5.5 5.9 5.9 5.8 6.1 7.1 7.1 6.9 6.5 6.7 7.3
WPI 10.7 13.1 12.1 11.6 11.6 11.8 13.8 14.9 14.3 13.7 13.4 14.6 15.4 16.6 16.2 14.1 12.4 10.7
Industry
Industrial production 133.5 27.6 13.8 11.5 13.0 4.4 4.2 1.0 1.0 2.0 1.2 2.2 6.7 19.7 12.7 2.2 -0.8
Manufacturing PMI[3] 55.5 50.8 48.1 55.3 52.3 53.7 55.9 57.6 55.5 54.0 54.9 54.0 54.7 54.6 53.9 56.4 56.2 55.1
New orders[3] 58.1 50.4 46.8 58.4 53.6 55.3 58.7 61.3 58.4 56.6 57.6 56.1 56.8 56.4 55.7 60.0 60.5 58.6
Core industries (index) 62.6 16.4 9.4 9.9 12.2 5.4 8.7 3.2 4.1 4.0 5.9 4.8 9.5 19.3 13.2 4.5 3.3
Coal output 9.5 7.0 7.4 18.8 20.6 7.8 14.7 8.2 5.2 8.2 6.6 0.3 30.1 33.5 32.1 11.4 7.6
Steel output 494.8 55.1 25.2 9.4 6.9 7.1 5.9 0.9 -0.6 3.8 5.6 4.1 2.5 15.1 3.6 6.0 2.2
Cement output 606.6 11.7 7.5 21.7 36.3 11.3 14.6 -3.6 14.2 14.1 4.2 9.0 7.4 26.2 19.7 0.5 1.8
Electricity generation 38.5 7.5 8.2 11.0 16.0 0.9 3.2 2.1 2.9 0.9 4.5 6.1 11.8 23.4 16.5 2.3 0.9
Corporate (industry) credit 0.8 1.7 1.6 2.0 1.8 1.3 3.1 3.3 9.0 6.4 6.9 8.1 9.5 10.7 11.1 13.4 14.2
Business expectation[3] 121.9 128.0 139.3 137.8 134.7
Services
Services PMI[3] 54.0 46.4 41.2 45.4 56.7 55.2 58.4 58.1 55.5 51.5 51.8 53.6 57.9 58.9 59.2 55.5 57.2 54.3
New business[3] 54.3 46.4 40.9 46.0 56.4 55.3 58.3 58.2 55.9 51.0 51.5 53.7 57.9 58.8 59.5 55.2 58.3 54.2
[1]
Port traffic 7.0 33.1 18.2 6.8 12.1 0.2 7.0 -0.2 -0.6 9.1 -4.5 0.8 -7.2 8.9 13.5 15.1 8.0 14.9
Railway freight traffic 70.7 39.1 20.5 18.5 16.9 3.6 8.4 6.1 7.2 7.7 6.6 6.7 9.4 14.6 11.3 8.3 7.9 9.1
Airline: cargo traffic 445.4 150.9 45.6 35.2 29.5 14.9 16.5 6.2 6.9 0.5 -2.8 0.3 2.3 13.8 13.9 6.1
Deposits 11.0 9.2 9.5 9.5 9.2 9.2 9.8 8.7 11.8 8.0 8.3 8.7 9.7 8.5 8.4 8.9 9.3
Bank credit 6.2 5.7 5.9 6.0 5.5 5.5 6.8 6.9 9.3 7.0 7.9 8.5 9.9 11.4 12.2 13.2 15.3
Services credit 2.2 3.4 4.0 3.8 2.1 0.8 2.3 2.9 10.4 6.0 6.3 8.7 11.2 12.7 12.8 16.5 17.2
Agriculture
Agricultural production 25.3 14.6 18.9 19.3 18.9 21.2 8.7 10.4 9.6 9.2 5.0 -2.9 -17.6 -25.4 -30.0 -31.8 -31.9 -36.0
Rice stock [5] 7.0 9.0 9.3 14.9 20.9 31.5 36.5 46.5 18.7 8.1 4.7 11.0 9.1 10.7 6.8 -4.0 -8.8 -19.2
Wheat stock 47.0 8.0 9.8 10.0 8.3 7.1 4.2 3.0 -3.7 -11.2 -20.8 -30.4 -42.3 -48.3 -52.8 -52.8 -52.1 -51.5
Other indicators
Service Taxes (YTD) -64.1 -68.9 -66.7 -72.8 -69.2 -63.0 -47.6 -44.0 -54.4 -72.7 -81.3 -79.8 -78.3 -77.0 -79.2 -78.4 -80.5
Gross tax (ex-service tax) (YTD) 24.2 33.5 36.7 38.0 37.3 39.3 37.0 35.3 33.5 30.3 29.5 28.3 28.8 28.4 27.3 27.6 25.9
BSE Sensex (Period Change %) -2.44 1.93 5.17 0.56 4.83 6.41 2.79 -1.66 -2.95 3.34 -3.17 -2.24 3.12 -6.41 -1.76 2.25 7.87 -0.25
US economic policy uncertainty index [1][3] 124.9 147.0 133.6 152.9 133.8 142.1 122.0 151.3 166.2 139.2 138.1 190.0 154.7 168.0 146.0 186.9 163.3 175.8
[1][3]
India economic policy uncertainty index 79.0 73.2 58.3 76.9 69.2 48.9 39.9 23.4 72.3 70.0 91.2 120.7 90.1 69.1 65.5 81.3 72.4 63.7
Sources: Bombay Stock Exchange(BSE), CEIC, Center for Monitoring Indian Economy (CMIE), Haver Analytics, Indian Ports Association, Ministry of Agriculture, Ministry of Commerce and Industry, Ministry of Railways, Ministry of Statistics and Program Implementation (MOSPI),
OECD, Reserve Bank of India (RBI), Society of Indian Automobile Manufacturers; Baker, Bloom, and Davis (2012, 2015); and IMF staff estimates.
Notes: The cell is highlighted in dark green if the growth is above average. The cell is highlighted in dark red if the growth is below average. The average for each data series covers data points since 2012 H1 to latest month. Last date of access: October 25, 2022.
[1]
Data from sources other than official sources. [2] Percent. [3] Index values. [4] Food Inflation refers to the year-on-year change in Consumer Food Price Index. [5] Rice stock excludes unmilled paddy stock.

INDIA
Box 1. Unleashing India’s Growth Potential1

The pandemic had a sizable impact on the key factors of production, with labor, TFP and capital all affected,
leading to some medium-term adverse impact. Successful implementation of wide-ranging structural reforms
could provide much-needed support to growth over the medium term.
A growth accounting exercise shows that labor was one of the most important drivers of economic growth in
the 1970s and 1980s. The contribution of capital2 picked up from late 1990s and 2000s, when the role of labor
declined. More recently, total factor productivity (TFP) growth played an important role in supporting growth,
together with physical capital.
The pandemic had a severe near-term impact on the economy and can impact medium-term potential growth
through four main channels. The first is capital growth, reflecting the initial sharp contraction in investment
and the subsequent impact on capital accumulation. The second is labor input growth, where both the total
employment ratio and hours per person declined sharply during the pandemic. While the medium-term
impact on labor inputs may be limited, structural challenges such as low female labor force participation and
high youth unemployment rate could continue to weigh on medium-term growth. Third, human capital
growth is expected to decline in the near term due to forgone on-the-job training. The impact of schooling
losses is expected to materialize over a longer horizon (beyond the five-year period analyzed here), especially
for those in low-income households. Finally, TFP growth could decline should the reallocation of labor from
productive sectors (industries and services) to less productive sectors (such as agriculture) that was observed
in the early stages of the pandemic prove durable. However, technology adoption including digitalization
could play a mitigating role.
A production function approach is used to estimate
medium-term potential growth under both baseline
and upside scenarios, accounting for the impact of the
pandemic, and reform dividends from structural
reforms, respectively. In the baseline scenario, potential
growth is estimated to be about 6 percent in the
medium term (2027). This is lower than a counterfactual
without the pandemic (estimated at about 6.5 percent).
Similar to the recent growth patterns, capital and TFP
are found to be the main drivers of medium-term
growth, with relatively small contribution from labor
inputs despite the sizeable demographic dividend. This
suggests potentially significant growth dividends from reforms that raise labor participation.
An illustrative upside scenario shows the potential dividends of structural reforms. On capital, we assume that
additional reforms in domestic and external finance would improve financial intermediation, therefore
increasing investment and capital accumulation. Further reforms in trade and product market could also
attract higher foreign direct investment. On labor, further reforms to improve female labor force participation
and reduce youth unemployment rate could help unleash the potential in India’s labor markets.
Strengthening vocational training and education will enhance the accumulation of human capital. Creating
additional job opportunities in industries and services could help facilitate the shift of labor toward more
productive sectors, improving TFP growth. In addition, further progress in digitalization could improve India’s
productivity in the medium and long run. In the upside scenario, a successful implementation of broad-based
structural reforms could raise medium-term potential growth to about 7 percent, more than offsetting the
persistent impact of the pandemic. However, uncertainty about potential growth estimates remains sizable
under the current environment.
________________________________
1
Kotera and Xu (forthcoming) “Unleashing India’s Growth Potential”, IMF Working Paper.
2
Capital captures capital services provided by structures, machinery, transport equipment, and other assets (such as software and
intellectual property products).

INDIA
Box 2. Financial Sector and Economic Growth in India1

Higher credit growth and lower non-performing loans (NPLs) are associated with higher GDP growth. Policies to
support credit growth and to strengthen balance sheets are particularly important during periods of low
economic growth.
India’s financial sector has faced several challenges in recent decades, including a rapid increase in NPLs after
the global financial crisis and the 2018-2019 period of NBFC stress. Credit growth was weak for some time,
with an estimated negative credit to GDP gap since 2012. Strong and sustained post-pandemic GDP growth,
supported by credit provision, will be needed for India
Growth-at-Risk: Shock to Credit and Leverage
to achieve its development goals.
A growth-at-risk (GaR) approach was used to analyze
how cyclical financial conditions affect GDP growth. The
results suggest that higher credit and lower NPLs are
associated with higher GDP in the near- and medium-
term. More favorable credit conditions are particularly
important in supporting the economic recovery during
periods of low growth. A negative shock to credit and
leverage could shift the entire growth distribution to
the left, with lower expected growth and higher
negative tail risks.
Bank-level panel regressions for both public and Notes: The results capture a two standard deviation
private banks were used to analyze the relationship negative shock to the credit and leverage partition,
between bank balance sheets, credit growth, and long- based on a growth-at-risk approach estimated
term growth. The results indicate that higher credit using data from 2001Q4 to 2021Q3. The credit and
growth, arising from better capitalized banks with leverage partition captures the credit to GDP ratio,
lower NPLs, was associated with higher GDP growth the credit to GDP gap, credit growth, and the NPL
over the long term. Furthermore, at least for private ratio. Source: IMF Staff estimates.
banks, the level of capitalization is strongly correlated
with credit growth.
These results highlight the importance of ensuring adequate credit growth and improving the balance sheets
of banks, particularly through reducing problem loans, to sustain economic growth. During periods of low
economic growth, policies to support credit growth and to strengthen balance sheets would be particularly
important. For example, credit guarantee schemes for MSMEs, loan restructuring scheme for COVID-affected
borrowers were important to support credit growth and cushion the economic impact of the pandemic.
Furthermore, financial regulators should continue to ensure that loans benefiting from COVID-related
restructuring schemes are closely monitored and properly provisioned for, to safeguard the health of
financial sector balance sheets and help support the economic recovery. Additionally, a focus on ensuring
that private banks are well capitalized, either through new equity issuance or reducing cash dividends, is
crucial, given the relationship between their balance sheets and credit to the economy.
________________________________
1 MacDonald and Xu (2022) “Financial Sector and Economic Growth in India”, IMF Working Paper WP/22/137.

INDIA
Box 3. Digitalization and GovTech1
Investment in public digital infrastructure has improved the provision of government services and enabled the rapid
deployment of support measures during the pandemic. To maximize this potential, it is crucial that policy addresses
the digital divide.
India is at the forefront of digital development having rolled
out digital infrastructure nationwide. India hosts 1.15 bn
mobile subscriptions, has 0.53 active mobile broadband
subscriptions per capita and 98 percent of the population has
access to at least a 4G network. India also has had rapid
growth in digital payments, the second highest share of new
graduates in STEM fields in the OECD and second highest
exports of ICT goods and services as a ratio of total exports in
the G20. This was achieved through liberal
telecommunications laws, open access for FDI, and the
effective use of government technology platforms.
Technology-based modernization of the public sector (GovTech) has enabled India to improve tax compliance,
streamline the provision of services and provide a platform for innovation. India is one of the pioneers in
embracing technology, at the whole of government level, to deliver citizen-centric public services. A key
component is the India Stack, combining digital identification (Aadhaar), interoperable payments framework (UPI)
and a data exchange layer, enabling greater access to finance and government services. This infrastructure is
regularly used to make direct benefit transfers to 706 million beneficiaries and allowed rapid deployment of
emergency support—to 318 million beneficiaries within two weeks from announcing the measure. 2 Importantly,
using common standards and open interfaces encourages the private sector to use the platform for the provision
of innovative services. For revenue administration, the roll-out of pre-filled income tax forms, by utilizing
third-party information, has coincided with strong revenue collection. 3 The tax departments have also utilized
artificial intelligence and machine learning to reduce fraud and improve compliance. The application of digital
solutions continues with the expansion of India Stack into health, education and e-commerce.
India can build on its existing digital infrastructure to better target services. Currently, beneficiary databases for
various support schemes are housed across different ministries. An integrated platform for individuals to apply for
multiple social support programs would simplify the application process, helping to ensure that programs reach
intended beneficiaries. It could also help generate cost savings through economies of scale, improve information
quality and accuracy, as well as potentially identifying duplicate programs. 4 India is well placed to take advantage
of such a system given its existing digital identification and payment system.
To maximize the benefits of GovTech, India will need to tackle two key challenges. First, it is essential to continue
closing the digital divide. Despite significant progress, 57 percent of Indians are not internet users, and non-users
are disproportionately female, live in rural areas, and in less wealthy states. Second, data should be adequately
protected in law so that individuals have trust in using the digital services.
________________________________
1
Dinar Prihardini and John Spray with contributions from the Information Technology Department.
2
Jain, Dhingra, Johns, and Rautela. (2021): “A Review of the effectiveness of India’s DBT system during COVID-19”
3
Carrillo, Pomeranz, and Singhal (2017): “Dodging the taxman: Firm misreporting and limits to tax enforcement.” American Economic
Journal: Applied Economics, 9(2), 144 64.
4
Leite., George, Sun, Jones, and Lindert (2017): ”Social Registries for Social Assistance and Beyond”. World Bank Social Protection and
Labour Discussion Paper No. 1704

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Box 4. India’s Transition to a Carbon-Neutral Economy1
India is at a pivotal juncture in its energy transition. India has made significant progress towards meeting its
NDC targets and has announced a Net Zero 2070 target at COP26. In addition to sectoral policies, a gradual
increase in subsidies on the use of renewable energy coupled with higher taxes on pollutants can move the
emissions path towards this goal, building greater energy security and reducing health effects from pollution.
External climate financing and technology transfer would help mitigate costs and ensure sustainability.
Under current policies, India is expected to see a 40.8 percent increase in total GHG emissions by 2030
(Figure 1, blue line). While a modest increase in short-term emissions may be necessary to meet
development goals, India is moving away from an illustrative linear path to Net Zero 2070 2 (red line). Upfront
action could lower the cost of meeting Net Zero because a) India is expected to increase fossil fuel
investments in the power sector which have substantial irreversible fixed costs, and b) the scale up of
alternatives is easier over longer time horizons allowing
technology and policy to gradually adjust.
A possible intermediate alternative emissions trajectory
(green line) can be achieved by incentivizing renewable
energy and lowering the use of fossil fuels. Three model-
based policy scenarios illustrate how combining
renewable subsidies, higher tariffs on coal, and carbon
taxes would each result in 31 percent lower GHG
emissions by 2030 compared to business as usual (BAU).3
In all scenarios growing energy demand is met through a
gradual increase of renewable energy and allowing coal
power to taper off, thus exceeding the goal of 50 percent
non-fossil fuel electricity capacity.
Policy choices matter. By 2030, a large renewable
subsidy would lead to budgetary costs amounting to
2.3 percent of GDP. If financed through higher and
distortionary direct taxation, this is projected to lead to
2.1 percent lower GDP by 2030. By contrast, if renewable
subsidies are combined with higher coal tariffs and a
broad carbon tax, revenue would increase by 0.7 percent
of GDP. Additionally, this revenue can be spent on
compensating the poorest making the policy
progressive. As the policy is less distortionary, this
lowers GDP by a more modest 0.3 percent of GDP. Given
any policy to lower emissions will impose costs, financial and technological support from abroad is needed
to relieve some of that burden.
Lower emissions have significant co-benefits, including lower deaths and fewer missed workdays from
pollutants and improved energy security. Increasing renewable energy usage and allowing coal to taper-off
in line with scenario 3 would lead to a 2.5 percent reduction in Particulate Matter (PM) 2.5 which would
result in an estimated 330,000 cumulative fewer deaths from pollution by 2035. It would also decrease coal
imports by 18 percent by 2030, thus increasing resilience to global changes in energy prices.
________________________________
1
Margaux McDonald and John Spray with contributions from Geetika Dang, Research and Fiscal Affairs Departments.
2
The Net Zero path is shown for illustrative purposes and is not a recommendation.
3
IMF-ENV is the IMF’s dynamic global general equilibrium climate model capturing detailed sectoral, trade, and employment
consequences of policies to address climate change. Important caveats to this analysis include that long-run costs may be
overestimated as it does not model new technology and short-run costs may be underestimated as there are minimal frictions to
labor, commodity, and power markets.

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Appendix I. External Sector Assessment

Overall Assessment: The external position in fiscal year 2021/22 (ending in March 2022) was broadly in line with the level implied by medium-term
fundamentals and desirable policies. Running CA deficits is broadly consistent with India’s level of per capita income, favorable growth prospects,
demographic trends, and development needs. External vulnerabilities stem from volatile global financial conditions and significant increases in commodity
prices. In part reflecting the impact of the war in Ukraine on oil prices, the CA deficit is projected to widen in fiscal year 2022/23 but then stabilize over the
medium term. The authorities have made some progress in external trade promotion and the liberalization of FDI and portfolio flows, but the existing tariff
structure remains broadly unchanged.
Potential Policy Responses: To maintain the external sector balance at a comfortable level over the medium term, gradual withdrawal of fiscal and monetary
policy stimulus, development of export infrastructure, and negotiation of free trade agreements with main trading partners to provide a sustainable boost to
exports of goods and services should be accompanied by further investment regime liberalization and a reduction in tariffs, especially on intermediate
goods. Structural reforms could deepen integration in global value chains and attract FDI, hence mitigating external vulnerabilities. Exchange rate flexibility
should act as the main shock absorber, with intervention limited to addressing disorderly market conditions.
Foreign Asset and Background. As of the end of 2021, India’s NIIP had improved to –11.1 percent of GDP from –13.5 percent of GDP at the end of 2020.
Liability Position This reflected a relatively low CA deficit (amid the COVID-19 pandemic) and the accumulation of reserve assets. Gross foreign assets
and Trajectory and liabilities were 30.5 percent of GDP and 41.7 percent of GDP, respectively. The bulk of assets were in the form of official reserves
and FDI, whereas liabilities included mostly FDI and other investments.
Assessment. With the CA deficit projected to widen in 2022 (due to external shocks) and stabilize at a lower level thereafter, the NIIP-
to-GDP ratio is expected to strengthen marginally over the medium term. India’s external debt liabilities are moderate compared with
peers, and short-term rollover risks are limited. The moderate level of foreign liabilities reflects India’s incremental approach to capital
account liberalization, which has focused primarily on attracting FDI.
2021 (% GDP) NIIP: –11.1 Gross Assets: 30.5 Debt Assets: 2.6 Gross Liab.: 41.7 Debt Liab.: 20.1
Current Background. In fiscal year 2021/22, the CA returned to a small deficit of 1.2 percent of GDP from an unusual surplus of
Account 0.9 percent of GDP in the previous year (due to the COVID-19 pandemic). As the pandemic eased, imports rebounded faster than
exports on the back of pent-up domestic demand and rising prices of oil and other commodities. The CA deficit is projected to widen
further to about 3 percent of GDP in fiscal year 2022/23, reflecting both the post-COVID economic recovery and the terms-of-trade
shock from the Ukraine war, which affects India mostly through higher (and volatile) oil prices. Over the medium term, the CA deficit is
projected to stabilize and converge to about 2.6 percent of GDP.
Assessment. The EBA cyclically adjusted CA balance stood at –1.6 percent of GDP in fiscal year 2021/22. The EBA CA regression
estimates a norm of –1.9 percent of GDP, with a standard error of 0.7 percent, thus implying a CA gap of 0.3 percent of GDP. In the
judgment of the IMF staff, a CA deficit of up to 2½ percent of GDP is financeable over time. Steady FDI inflows are not yet sufficient to
cover protracted and large CA deficits, while portfolio flows are volatile and susceptible to changes in global risk appetite. Additional
cyclical considerations are given to factor in the transitory impacts of the COVID-19 crisis (0.7 percent of GDP), which includes the
impacts on travel (0.4 percent of GDP), transportation (0.6 percent of GDP), shifts in household consumption (–0.1 percent of GDP), and
medical goods of (–0.1 percent of GDP). Thus, with the IMF staff–assessed CA norm and COVID-19–related adjustor, the IMF staff
assesses the CA gap to be 1 percent of GDP, with a range of 0.3 to 1.7 percent of GDP. Positive policy contributions to the CA gap stem
mostly from the domestic credit gap.
2021 (% GDP) CA: –1.2 Cycl. Adj. CA: –1.6 EBA Norm: –1.9 EBA Gap: 0.3 COVID-19 Adj.: 0.7 Other Adj.: 0 Staff Gap: 1.0
Real Exchange Background. In 2020 and early 2021, unusual CA surpluses resulted in appreciation pressures on the rupee. This trend abated and
Rate reversed when the CA returned to deficit in the second half of 2021 and volatile portfolio investments shifted to net outflows. The
average REER in 2021 depreciated by about 1.1 percent from its 2020 average. As of May 2022, the REER was 2.4 percent above the
2021 average.
Assessment. The IMF staff CA gap implies a REER gap of –6 percent (applying an estimated elasticity of 0.16). EBA REER index and level
models suggest an overvaluation of 10.1 percent and 8.5 percent, respectively. Consistent with the staff CA gap, however, the IMF staff
assesses the REER gap to be in the range of –10.3 to –1.7 percent, with a midpoint of –6 percent, for fiscal year 2021/22.
Capital and Background. In FY2021/22, the financial account balance was about –1.2 percent of GDP (indicating net inflows to India), compared
Financial with outflows of 0.8 percent of GDP in 2020/21. FDI inflows decreased to 1.2 percent of GDP (from 1.6 percent of GDP in prior year) and
Accounts: volatile portfolio investments shifted to outflows of about 0.5 percent of GDP, while other investments reflecting mostly debt-creating
Flows flows increased to about 2.2 percent of GDP. During the year, the Indian authorities made further steps towards capital account
and Policy liberalization. They increased the limits on FDI and portfolio investments, particularly for the oil, gas, and life insurance sectors.
Measures
Assessment. While FDI inflows covered the CA deficit in FY2021/22, structural reforms and improvement of the investment regime to
promote FDI are needed. Volatile portfolio investments are very sensitive to changes in global financial conditions and country risk
premia. Expected inclusion of India in international bond indices should increase portfolio investment inflows for financing the CA
deficit over the medium term.
FX Intervention Background. An unusual period of CA surpluses in 2020 and early 2021 allowed the Reserve Bank of India to replenish official FX
and Reserves reserves, which reached a record high of about US$638.5 billion at the end of 2021. The reserves decreased in subsequent months but
Level remained at a comfortable level of about eight months of import coverage.
Assessment. Various criteria confirm that official FX reserves are adequate for precautionary purposes. As of the end of 2021, they
represented about 223 percent of short-term debt (on residual maturity) and 195 percent of the IMF’s composite metric. Consequently,
accumulation of additional reserves is less warranted, and FX interventions should be limited to addressing orderly market conditions.

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Appendix II. Risk Assessment Matrix 1/

Sources of risk Risk Expected impact Policy response
likelihood
External risks
Intensifying High Further sanctions resulting from the war Diversify critical import sources. Secure
spillovers from and related uncertainties exacerbate export market access through
Russia’s war in trade and financial disruptions and multilateral and bilateral trade
Ukraine. commodity price volatility. agreements. Accelerate transition
towards renewable energy.
Commodity price High A combination of continuing supply Improve targeting of transfers to
shocks. disruptions (e.g., due to conflicts and protect the most vulnerable and
export restrictions) and negative demand accelerate shift to renewable sources of
shocks causes recurrent commodity price energy. Maintain exchange rate
volatility and social and economic flexibility to absorb external shocks but
instability. intervene to prevent disorderly
currency movements.
De-anchoring of Medium Supply shocks to food and energy prices Tighten fiscal and monetary policies to
inflation sharply increase headline inflation and anchor inflation expectations and
expectations and pass through to core inflation, de- prevent second-round effects of
stagflation. anchoring inflation expectations. commodity price shocks; increase
transfers to the poor as needed to
alleviate the impact of inflation.
Abrupt global Medium Global and idiosyncratic risk factors Rebuild fiscal buffers and maintain
slowdown or combine to cause a synchronized sharp strong external position to withstand
recession. growth slowdown, with outright external and domestic shocks. Further
recessions in some countries, spillovers enhance the environment for attracting
through trade and financial channels, and FDIs and other stable non-debt
downward pressures on some commodity creating capital flows as well as
prices. portfolio investments.
For EMDEs: High Sharp tightening of global financial Maintain exchange rate flexibility to
conditions combined with volatile absorb external shocks. With adequate
commodity prices leads to spiking risk reserves, provide foreign exchange
premia, widening of external imbalances liquidity to prevent disorderly currency
and fiscal pressures, and capital outflows. movements.
Deepening geo- High Broadening of conflicts and reduced Continue building capacity for the use
economic international cooperation accelerate of Indian rupee for international trade
fragmentation deglobalization, resulting in a invoicing and settlement. Play a
and geopolitical reconfiguration of trade, supply stabilizing role in the region by
tensions. disruptions, technological and payments promoting mutually beneficial
systems fragmentation, rising input costs, cooperation.
financial instability, a fracturing of
international monetary and financial
system, and lower potential growth.
Cyberthreats. Medium Cyberattacks on critical physical or digital Further improve protection of India’s
infrastructure (including digital currency digital assets against hacking attempts.
platforms) trigger financial instability and Maintain back-up copies of critical
disrupt economic activities. databases.
_________________________________________________________________
1/ The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. The relative likelihood is
the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below
10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The
RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the
authorities. Non-mutually exclusive risks may interact and materialize jointly.

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Sources of risk Risk Expected impact Policy response

likelihood
Domestic risks
Large scale social Medium Rising food and fuel prices, or the pursuit Increase spending on social
discontent. of difficult structural reforms could protection to the poorest segments.
create social discontent, causing capital Avoid sharp hikes of food and fuel
outflows, slowing economic growth, and prices or offset them with transfers to
giving rise to economically damaging the poor. Communicate clearly to
policies. explain the benefit from structural
reforms and protect the most
vulnerably from possible adverse
impact.
Local COVID-19 Medium Emergence of more contagious vaccine- Increase public expenditure in health
outbreaks. resistant variants forces new mobility infrastructure, education, and social
restrictions or inhibit commerce. This safety nets to mitigate the immediate
results in extended supply chain impact of the pandemic and boost
disruptions, slower growth, capital potential growth.
outflows, and lower consumer and
business confidence.
Financial sector Medium Tightening financial conditions can result Encourage banks to build capital
vulnerabilities. in deterioration of bank and NBFC asset buffers and to recognize problem
quality, which in turn would cause loans. Implement targeted prudential
financial stress, limit credit provision, and policies to reduce vulnerabilities.
weigh on long-term growth prospects. Implement governance reforms in the
PSB sector.
Weakening fiscal Medium Further weakening of fiscal position leads Enhance fiscal policy space through a
position and to a sharp increase in financing costs and credible medium-term fiscal
materialization of the realization of contingent liabilities, consolidation strategy anchored on
fiscal risks. with broader implications for financial stronger revenue mobilization,
conditions and the financial system. increased expenditure efficiency and
clear communication. Reduce the
interconnectedness between the
sovereign and banks’ balance sheets
Natural disasters Medium More frequent natural disasters deal Increase infrastructure investments to
related to climate severe damage to infrastructure and mitigate the impact of the natural
change. amplify supply chain disruptions and disasters. Accelerate transition to a
inflationary pressures, causing water and carbon-neutral green economy.
food shortages and reducing medium- Strengthen social safety net. Support
term growth. climate resilient agriculture.

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Appendix III. Debt Sustainability Analysis

Debt sustainability risks have increased for India due to high debt levels and elevated gross financing
needs amidst monetary policy tightening. Public debt to GDP ratio 1 is expected to increase from
83 percent of GDP in FY2021/22 remaining at around this level, before gradually declining from
FY2025/26 onwards. Gross financing needs remain high at around 15 percent of GDP over the next
five years. Debt dynamics remain favorable in the medium term and support a sustainable debt path.
Rising interest rates and slowing growth underline the need for a credible fiscal consolidation strategy
to reduce public debt and regain fiscal space. Risks are mitigated as the bulk of public debt are fixed
rate instruments denominated in domestic currency and, due to regulatory requirements,
predominantly held by residents. In the long term, debt dynamics depend on structural reforms to lift
India’s growth potential and on maintaining fiscal discipline.
1. India’s debt-to-GDP ratio peaked at 89 percent in FY2020/21 and is projected to

remain elevated over the medium term. The economic recovery and associated narrowing of the
deficit brought debt levels to 83.4 percent of GDP at the end of FY2021/22. The slow pace of fiscal
consolidation means that debt is expected to remain at around this level, before gradually declining
from FY2025/26 onwards. Nominal GDP growth is projected to increase to 15.4 percent in
FY2022/23 as the economic recovery continues amidst inflationary pressures, before moderating to
around 11 percent in the medium term. Inflation is expected to decline 6.0 percent in FY2023/24.
Monetary policy tightening and a gradual normalization of commodity prices are expected to bring
inflation to its long-term target of around 4 percent by FY2027/28. Increases in the policy rates are
reflected in a higher effective interest rate of around 7.6 percent. India’s debt-stabilizing primary
deficit is estimated at 2.3 percent of GDP.
2. India’s public debt sustainability analysis is based on the following macroeconomic

assumptions:
• Growth assumptions. Growth is projected at 6.8 percent on FY2022/23 and declining to about
6 percent by FY2027/28. GDP growth is expected to moderate amid higher oil prices, weaker
external demand, and tighter financial conditions. Near-term growth has been revised
downwards compared to the previous DSA due to less favorable external conditions and
front-loading of monetary policy tightening.
• Fiscal assumptions. The general government fiscal deficit is projected to remain at around
10 percent of GDP in FY2022/23, reflecting buoyant revenues and policy measures that were
implemented to mitigate cost of living pressures (e.g., fuel tax cuts, free food rations, and higher
fertilizer subsidies). A gradual narrowing of the deficit is expected from FY2023/24 onwards as
revenues continue to recover, fiscal support is withdrawn, and commodity prices normalize. The
1
Public debt figures reported in the DSA reflect the consolidated liabilities of the central and state governments
(general government). They exclude Special Drawing Rights and therefore are lower than the figures reported in the
main text and staff report tables.

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primary deficit is projected to decline to 1.7 percent of GDP by FY2027/28, in line with the
adjustment path in the previous DSA.
3. Despite mitigating factors, debt sustainability risks have increased due to higher
effective interest rates combined with high gross financing needs and slowing growth. Gross
financing needs are estimated at 16 percent of GDP in the short term, before moderating to around
15 percent of GDP. Nominal GDP growth is expected to moderate to 11 percent of GDP over the
forecast horizon. At the same time, effective interest rates are expected to increase somewhat from
7 percent in FY2021/22 to 7.7 percent by F2024/25 before moderating to 7.6 percent in the medium
term. Additional increases in interest rates, relative to those that have been factored in the baseline,
would further lift debt servicing costs and heighten debt sustainability risks. That said, the structure
of India’s debt is a mitigating factor for sustainability risks. The public debt stock is comprised of
fixed rate instruments with long maturities (the weighted average maturity of central government
outstanding debt securities is 12 years), the bulk of which is denominated in domestic currency.
Foreign currency-denominated public debt is largely on concessional terms. Non-resident holdings
of government debt are quite low at less than 2 percent of central government securities. The
composition of debt is set to remain the same over the projection period, with the bulk of financing
needs met by the issuance of medium and long-term debt denominated in domestic currency and
held by residents. Delays in medium-term consolidation would elevate debt sustainability risks.
4. Debt dynamics over the medium term are subject to significant uncertainty.
• Realism of baseline assumptions. Assumptions on fiscal consolidation are within the median
for surveillance countries and are expected to be met. Past forecast errors in projecting real GDP
growth and the primary balance are reasonable, with a percentile rank of 50 percent and
60 percent, respectively.
• Risks to debt sustainability. The primary risk to India’s debt sustainability is low growth. The
stress test corresponding to a growth shock, in which output growth is 3.4 percentage points
lower than the baseline in FY2023/24 and FY2024/25, yields a deteriorating debt path with
debt-to-GDP peaking at about 93 percent of GDP and gross financing needs reaching a peak of
about 18 percent of GDP. The combined macro-fiscal shock incorporates the same growth
shock, a primary balance shock in which the medium-term fiscal adjustment is delayed (with a
cumulative impact on the primary deficit of about 5 percent of GDP relative to baseline), and an
interest rate shock that leads to a 315 basis points increase in interest rate relative to baseline
through the medium term. In this adverse scenario, debt increases to 95 percent of GDP in the
medium term. Fiscal risks reflect higher macroeconomic uncertainty, particularly from the
external sector, and contingent liabilities from public sector banks and electricity generation
corporations 2. The stress test corresponding to a contingent liability shock suggests that debt
2Central government non-financial SOEs hold 22 percent of GDP in assets, while public sector banks hold 60 percent
of GDP in assets.

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would peak at just below 100 percent of GDP and would decline very gradually in the medium
term.
5. Vulnerabilities are high in the heat map, reflecting the high baseline debt-to-GDP ratio
and gross financing needs. Under all shocks, debt sustainability metrics signal high risks, reflecting
the breach of the debt and gross financing risk thresholds of 70 percent and 15 percent of GDP,
respectively. This is consistent with debt sustainability metrics in staff’s previous assessment
(2021 India Article IV Report). Risks stemming from market perception (measured by bond spreads)
and external financing requirements (defined as the current account balance and amortization of
short-term external debt) are assessed at a medium level of vulnerabilities.
6. Factors driving India’s favorable debt dynamics are eroding hence fiscal consolidation
and structural reforms become crucial for reducing public debt. With growth slowing to
6 percent of GDP and monetary tightening under the baseline, the interest-rate and growth
differential narrow over the projection period. Under a constant primary balance of -1.7 percent of
GDP (its projected level at the end of staff’s medium-term horizon), and an interest rate-growth
differential of 3.5 percentage points, debt would decline to 70 percent of GDP (its average level
before the pandemic) in about 17 years. A primary balance of about -0.5 percent, on the other hand,
would bring the debt-to-GDP ratio to 70 percent in about seven years under the same interest
rate-growth differential. This highlights the importance of further fiscal consolidation and fiscal
discipline in the medium term to achieve a meaningful reduction in public debt. Long-term debt
dynamics also depend critically on the economy’s growth potential. Strong implementation of the
structural reform agenda is needed to support long-term growth prospects and to avoid placing a
greater burden on fiscal policy to achieve debt sustainability. If the interest rate-growth differential
is higher by 1 percentage point, bringing debt down to 70 percent in seven years, would require a
considerably larger fiscal consolidation—a primary balance of about 0.3 percent of GDP.

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Figure 1. India Public Sector Debt Sustainability Analysis (DSA) - Baseline Scenario
(in percent of GDP unless otherwise indicated)
1/
Debt, Economic and Market Indicators
Actual Projections As of August 26, 2022
2/
2011-2019 2020 2021 2022 2023 2024 2025 2026 2027 Sovereign Spreads
Nominal gross public debt 69.1 89.0 83.4 82.9 83.3 83.6 83.3 83.0 82.6 EMBIG (bp) 3/ 417
Public gross financing needs 11.7 18.7 15.6 16.2 15.3 14.7 14.7 14.1 14.9 5Y CDS (bp) 123
Real GDP growth (in percent) 6.6 -6.6 8.7 6.8 6.1 6.8 6.8 6.5 6.2 Ratings Foreign Local
Inflation (GDP deflator, in percent) 5.5 5.6 10.0 8.0 6.0 4.6 4.4 4.2 4.2 Moody's Baa3 Baa3
Nominal GDP growth (in percent) 11.1 -1.4 19.5 15.4 12.4 11.7 11.5 11.0 10.6 S&Ps BBB- BBB-
Effective interest rate (in percent) 4/ 7.7 6.9 7.0 7.4 7.6 7.7 7.6 7.5 7.6 Fitch BBB- BBB-
Contribution to Changes in Public Debt

Actual Projections
2011-2019 2020 2021 2022 2023 2024 2025 2026 2027 cumulative debt-stabilizing
Change in gross public sector debt 1.0 14.1 -5.6 -0.6 0.4 0.3 -0.2 -0.3 -0.4 -0.8 primary
Identified debt-creating flows 0.6 13.6 -4.2 -1.3 -0.1 -0.2 -0.6 -0.7 -0.7 -3.5 balance 9/
Primary deficit 2.6 7.6 4.9 4.6 3.5 2.9 2.3 2.0 1.7 16.9 -2.3
Primary (noninterest) revenue and grants 19.6 18.2 20.1 19.0 19.2 19.5 19.8 20.0 20.3 117.8
Primary (noninterest) expenditure 22.2 25.8 24.9 23.6 22.6 22.4 22.1 22.0 22.0 134.7
Automatic debt dynamics 5/ -1.9 6.2 -9.2 -5.8 -3.5 -3.0 -2.9 -2.6 -2.3 -20.2
Interest rate/growth differential 6/ -2.1 6.3 -9.3 -5.8 -3.5 -3.0 -2.9 -2.6 -2.3 -20.2
Of which: real interest rate 1.9 1.3 -2.9 -0.8 0.9 2.1 2.2 2.3 2.3 8.9
Of which: real GDP growth -4.0 5.0 -6.5 -4.9 -4.5 -5.1 -5.1 -4.9 -4.6 -29.1
Exchange rate depreciation 7/ 0.2 -0.1 0.1 … … … … … … …
Other identified debt-creating flows -0.1 -0.2 0.1 -0.1 0.0 0.0 0.0 0.0 0.0 -0.2
Consolidated General Govt - Domestic Financing:
Privatization Receipts (Rs Billion, FY-March) -0.3 -0.2 -0.1 -0.2 -0.1 -0.1 -0.1 -0.1 -0.1 -0.7
Contingent liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Residual liabilities to NSSF 0.3 0.0 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.5
Residual, including asset changes 8/ 0.4 0.4 -1.4 0.7 0.5 0.4 0.4 0.3 0.3 2.7
20 40
Debt-Creating Flows projection
15 (in percent of GDP) 30
20
10
10
5
0
0
-10
-5
-20
-10 -30
-15 -40
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 cumulative
Primary deficit Real GDP growth Real interest rate Exchange rate depreciation Other debt-creating flows Residual Change in gross public sector debt
Source: IMF staff.

1/ Public sector is defined as general government.
2/ Based on available data.
3/ Long-term bond spread over U.S. bonds.
4/ Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.
5/ Derived as [(r - π(1+g) - g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate;
a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).
6/ The real interest rate contribution is derived from the numerator in footnote 5 as r - π (1+g) and the real growth contribution as -g.
7/ The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r).
8/ Includes asset changes and interest revenues (if any). For projections, includes exchange rate changes during the projection period.
9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

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Figure 2. India Public DSA - Composition of Public Debt and Alternative Scenarios
Composition of Public Debt
By Maturity By Currency
(in percent of GDP) (in percent of GDP)
100 100
Medium and long-term Local currency-denominated
90 90
Short-term Foreign currency-denominated
80 80
70 70
60 60
50 50
40 40 projection
30 30
projection
20 20
10 10
0 0
2011 2013 2015 2017 2019 2021 2023 2025 2027 2011 2013 2015 2017 2019 2021 2023 2025 2027
Alternative Scenarios
Baseline Historical Constant Primary Balance
Gross Nominal Public Debt Public Gross Financing Needs

(in percent of GDP) (in percent of GDP)
120 25
100
20
80
15
60
10
40
20 5
projection projection
0 0
2020 2021 2022 2023 2024 2025 2026 2027 2020 2021 2022 2023 2024 2025 2026 2027
Underlying Assumptions
(in percent)
Baseline Scenario 2022 2023 2024 2025 2026 2027 Historical Scenario 2022 2023 2024 2025 2026 2027
Real GDP growth 6.8 6.1 6.8 6.8 6.5 6.2 Real GDP growth 6.8 5.5 5.5 5.5 5.5 5.5
Inflation 8.0 6.0 4.6 4.4 4.2 4.2 Inflation 8.0 6.0 4.6 4.4 4.2 4.2
Primary Balance -4.6 -3.5 -2.9 -2.3 -2.0 -1.7 Primary Balance -4.6 -3.2 -3.2 -3.2 -3.2 -3.2
Effective interest rate 7.4 7.6 7.7 7.6 7.5 7.6 Effective interest rate 7.4 7.6 7.7 7.7 7.7 7.7
Constant Primary Balance Scenario
Real GDP growth 6.8 6.1 6.8 6.8 6.5 6.2
Inflation 8.0 6.0 4.6 4.4 4.2 4.2
Primary Balance -4.6 -4.6 -4.6 -4.6 -4.6 -4.6
Effective interest rate 7.4 7.6 7.7 7.6 7.5 7.5
Source: IMF staff.

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Figure 3. India Public DSA - Realism of Baseline Assumptions

Forecast Track Record, versus surveillance countries
Real GDP Growth Primary Balance Inflation (Deflator)
(in percent, actual-projection) (in percent of GDP, actual-projection) (in percent, actual-projection)
India median forecast error, 2013-2021: -0.36 India median forecast error, 2013-2021: -0.08 India median forecast error, 2013-2021: -0.51
Has a percentile rank of: 50% Has a percentile rank of: 62% Has a percentile rank of: 46%
4 4 8
pessimistic
2
2 6
0
-2 0 4
-4 -2 2
-6
-8 Distribution of forecast -4 Distribution of forecast 0 Distribution of forecast
optimistic
-10 errors: 1/ -6 errors: 1/ -2 errors: 1/

-12 Distribution of forecast errors: Distribution of forecast errors: Distribution of forecast errors:
Median -8 Median -4 Median
-14
India forecast error India forecast error India forecast error
-16 -10 -6
2013 2014 2015 2016 2017 2018 2019 2020 2021 2013 2014 2015 2016 2017 2018 2019 2020 2021 2013 2014 2015 2016 2017 2018 2019 2020 2021
Year 2/ Year 2/ Year 2/
Assessing the Realism of Projected Fiscal Adjustment Boom-Bust Analysis 3/

3-Year Adjustment in Cyclically-Adjusted 3-Year Average Level of Cyclically-Adjusted Primary Real GDP growth
Primary Balance (CAPB) Balance (CAPB) (in percent)
(Percent of GDP) (Percent of GDP) India
14 12 8
Distribution 4/ 3-year CAPB adjustment greater Distribution 4/ 3-year average CAPB level
12 India than 3 percent of GDP in approx. 10 India greater than 3.5 percent of GDP 6
has a percentile top quartile has a percentile in approx. top quartile
10 rank of 38% rank of 84% 4
8
8 2 Not applicable for India
6
6 0
4
4 -2
2 2
-4
0 0 -6
More
More
Less
8
-4
-3
-2
-1
Less
8
-4
-3
-2
-1
t-5 t-4 t-3 t-2 t-1 t t+1 t+2 t+3 t+4 t+5
Source : IMF Staff.

1/ Plotted distribution includes surveillance countries, percentile rank refers to all countries.
2/ Projections made in the spring WEO vintage of the preceding year.
3/ Not applicable for India, as it meets neither the positive output gap criterion nor the private credit growth criterion.
4/ Data cover annual obervations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis.

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Figure 4. India Public DSA - Stress Tests
Macro-Fiscal Stress Tests
Baseline Primary Balance Shock Real Interest Rate Shock

Real GDP Growth Shock Real Exchange Rate Shock
Gross Nominal Public Debt Gross Nominal Public Debt Public Gross Financing Needs
(in percent of GDP) (in percent of Revenue) (in percent of GDP)
95 500 20
18
480
90 16
460 14
85 440 12
10
80 420 8
400 6
75 4
380
2
70 360 0
2022 2023 2024 2025 2026 2027 2022 2023 2024 2025 2026 2027 2022 2023 2024 2025 2026 2027
Additional Stress Tests

Baseline Combined Macro-Fiscal Shock Contingent Liability Shock
Gross Nominal Public Debt Gross Nominal Public Debt Public Gross Financing Needs
(in percent of GDP) (in percent of Revenue) (in percent of GDP)
120 550 25
100 500
20
450
80
400 15
60
350 10
40
300
5
20 250
0 200 0
2022 2023 2024 2025 2026 2027 2022 2023 2024 2025 2026 2027 2022 2023 2024 2025 2026 2027
Underlying Assumptions
(in percent)
Primary Balance Shock 2022 2023 2024 2025 2026 2027 Real GDP Growth Shock 2022 2023 2024 2025 2026 2027
Primary balance -4.6 -4.6 -3.5 -2.9 -2.3 -2.0 Primary balance -4.6 -4.4 -4.7 -2.3 -2.0 -1.7
Real Interest Rate Shock Real Exchange Rate Shock
Combined Shock Contingent Liability Shock
Source: IMF staff.

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Figure 5. India Public DSA Risk Assessment

Heat Map
Debt level 1/ Real GDP Primary Real Interest Exchange Rate Contingent
Growth Shock Balance Shock Rate Shock Shock Liability shock
Real GDP Primary Real Interest Exchange Rate Contingent

Gross financing needs 2/
Growth Shock Balance Shock Rate Shock Shock Liability Shock
External Change in the Public Debt Foreign

3/ Market
Debt profile Financing Share of Short- Held by Non- Currency
Perception
Requirements Term Debt Residents Debt
Evolution of Predictive Densities of Gross Nominal Public Debt

(in percent of GDP)
Baseline Percentiles: 10th-25th 25th-75th 75th-90th
Symmetric Distribution Restricted (Asymmetric) Distribution

100 105
95 100
90 95
90
85
85
80
80
75
75 Restrictions on upside shocks:
70 70
no restriction on the growth rate shock
no restriction on the interest rate shock
65 65 0 is the max positive pb shock (percent GDP)
no restriction on the exchange rate shock
60 60
2020 2021 2022 2023 2024 2025 2026 2027 2020 2021 2022 2023 2024 2025 2026 2027
Debt Profile Vulnerabilities

(Indicators vis-à-vis risk assessment benchmarks, in 2021)
India Lower early warning Upper early warning
600 1 45 60
442
bp
9%
200 0.5 0.3% 15 20
4%
3%
1 2 1 2
Annual
1
Change2 in 1 2 1 2
External Financing Public Debt Held by Public Debt in

Bond spread Short-Term Public
Requirement Non-Residents Foreign Currency
Debt
(in basis points) 4/ (in percent of GDP) 5/ (in percent of total) (in percent of total) (in percent of total)
Source: IMF staff.

1/ The cell is highlighted in green if debt burden benchmark of 70% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if
benchmark is exceeded under baseline, white if stress test is not relevant.
2/ The cell is highlighted in green if gross financing needs benchmark of 15% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red
if benchmark is exceeded under baseline, white if stress test is not relevant.
3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment benchmark, yellow if country
value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white.
Lower and upper risk-assessment benchmarks are:
200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15 and 45 percent for
the public debt held by non-residents; and 20 and 60 percent for the share of foreign-currency denominated debt.
4/ Long-term bond spread over U.S. bonds, an average over the last 3 months, 28-May-22 through 26-Aug-22.
5/ External financing requirement is defined as the sum of current account deficit, amortization of medium and long-term total external debt, and short-term total external debt at the end of
previous period.

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Appendix IV. Recent and Planned Capacity Development

1. The Fund’s capacity development (CD) activities with India have been scaled up in
recent years. This has been underpinned by the large financial contribution made by the
government to SARTTAC. During the early phase of the pandemic, the CD engagement was
recalibrated toward online delivery for both the central and state levels, with a focus on areas that
would support the recovery. The online delivery allowed high-level and cross-country participations
and dialogue. New formats were also used to strengthen learning, including selected forms of
blended and hybrid delivery of virtual CD. Starting in March 2022, in-person training at the SARTTAC
has been restarted.
2. Since its inauguration in February 2017, the SARTTAC has anchored the CD delivery in
the region. SARTTAC has delivered training to more than 6,000 officials (excluding webinars) at
some 250 events and conducted approximately 350 technical assistance (TA) missions. During the
pandemic, engagement has been mostly virtual. As highlighted in its FY2021 Annual Report,
SARTTAC provided extensive training and TA in the Fund’s core areas of expertise such as
macro-fiscal forecasting, financial programming, national accounts, government finance statistics,
revenue administration, public financial management, monetary operations and financial sector
supervision. A total of 751 Indian officials, including early to mid-career officials and officials from
the Indian Economic and Administration Services, received training in FY2021 through SARTTAC, up
75 percent from the previous year. Noteworthy uptake of PFM-related TA reflected strong
ownership at the state level, Odisha and Tamil Nadu in particular, with agreement on multi-year CD
plans in both states. Ongoing workplans in FY2013 include TA on PFM (cash and commitment
control, fiscal reporting, budget execution and control), training on the compilation and
dissemination of government finance statistics – all at the state level; and TA on national accounts
estimates and consumer and producer prices; and macro- and fiscal-related cohort training at the
national level. A subnational Public Investment Management Assessment (PIMA) is also planned for
Tamil Nadu.
3. In line with the Fund’s CD strategy:
• Ongoing activities and collaboration with Indian authorities has helped with customization
for country needs. For India and SARTTAC member countries, new regional courses were offered
on the role of public financial management (PFM), around digitalization and climate change issues,
nowcasting and near-term forecasting, on gender inequality and macroeconomics, while webinars
addressed climate risk in the financial sector and cybersecurity. Furthermore, cohort training in India
intensified, notably in core macroeconomic and revenue administration issues. The macro-training
was principally provided to civil servants through Lal Bahadur Shastri National Academy of
Administration (LBSNAA)—India’s apex academy for civil service training, while revenue
administration training was done in support of the Central Board of Direct Taxes’ learning and
development program. Training on fiscal risk management was also done for the Office of the
Comptroller and Auditor General. In addition, SARTTAC supported training needs at the RBI through
its College of Supervisors and the RBI Academy (on more general banking governance issues).

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• CD activities have been further integrated with surveillance and IMF policy advice, including
emerging priority areas. In addition to the regular CD delivery, APD and functional departments
(e.g., MCM) have worked with the authorities on specific queries that can aid policy formulation.
Emerging priority areas are receiving close attention. For example, in the area of financial sector
supervision and regulation, contemporary challenges were addressed in a set of national webinars
on cyber risks facing regulators in the financial sector and on addressing climate risks in prudential
supervision and regulation, in collaboration with MCM.

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Appendix V. Uptake of Previous IMF Advice

1. The pandemic waves and the shifting global policy landscapes posed challenges for
policy formulation, but policies have been broadly consistent with Staff’s past advice.
Monetary, fiscal and exchange rate policies since the last Article IV have been broadly consistent
with IMF advice while the challenges of structural and financial sector reforms and medium-term
fiscal consolidation have remained elevated. Since the last Article IV, policies have focused on
supporting the recovery and addressing new external shocks as the pandemic-related support
measures were gradually recalibrated.
2. The recalibration of monetary policy has been appropriate. Monetary policy has been
tightened as the recovery gained momentum and the economy faced both external and domestic
shocks from the war in Ukraine and global monetary tightening.
3. The recent pandemic waves further delayed medium-term fiscal consolidation as

advocated in the last Article IV. After deteriorating sharply during the pandemic, the fiscal deficit
narrowed in FY2021/22, reflecting the recovery and phasing out of pandemic-related expenditures.
Accommodative fiscal stance has appropriately focused on supporting the vulnerable groups and
the economy amid the pandemic shocks. A credible and clearly communicated medium-term fiscal
consolidation, advocated by staff, remains critical to enhance policy space, reduce crowding out, and
facilitate a private sector led recovery.
4. Financial sector policies provided important support to the corporate sector during
the pandemic, but most measures have now been appropriately discontinued. As advised by
staff, policies are shifting toward facilitating the exit of non-viable firms, encouraging banks to build
capital buffers and recognize problem loans. Staff past advice on financial sector reforms and their
steadfast implementation, including on the PSBs, is now more urgent to support a more durable and
inclusive recovery.
5. The authorities’ responses to external sector developments have been in line with past
Fund advice. Amid the recent external shocks, the RBI appropriately relied on exchange rate
flexibility, while foreign exchange reserves were used to smooth excessive market volatility. There
has been some progress on further liberalization to facilitate trade and investment, but more is
needed to reduce trade barriers and promote India’s integration in GVCs.
6. Some structural reforms, key to staff’s policy advice, continue to face implementation
challenges. Whilst the passage of four new labor codes should help enhance inclusive and
sustainable growth, implementation, which is the responsibility of states, has been delayed.
Agricultural reforms, essential to modernizing the sector and adapting to climate change, remain in
planning stages. Privatization milestones were achieved with the sale of Air India and listing of The
Life Insurance Corporation of India, while others are delayed. India announced the sale of two state-
owned banks in the FY2021/22 budget, although this is yet to happen and may require amendments
to the Bank Nationalization Act. The FY2022/23 Budget did not announce any new privatization
initiatives. The increased use of digital government services represents a significant governance

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reform. The launch of the single window system is welcome and should be expanded to further
reduce bottlenecks. Further strengthening of the judicial system, in line with previous staff advice, is
needed.

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Appendix VI. Options for Central Bank Digital Currency for India
The Indian authorities have announced the launch of a Central Bank Digital Currency (CBDC),
which is expected to help achieve several objectives. In India the debate has so far covered
multiple goals, including improving the domestic payment system and facilitating cross-border
transactions. 1 The extent to which CBDC can deliver on these objectives will depend in no small part
on the selected design features. Different characteristics would involve different potential advantages
and risks, affecting the cost-benefit analysis for each of the goals listed above. In particular, the
presence of potentially competing private providers could limit the benefits and make it more
difficult to justify the cost of adopting a CBDC.
A. Different CBDCs for Different Goals
CBDC to Improve the Domestic Payment System
1. A retail CBDC, which is accessible to households and firms, appears to be the most
relevant form if the goal is to improve the domestic payment system. While potentially still
beneficial, a wholesale CBDC would provide limited advantages compared with central bank reserves
for domestic transactions, for instance by allowing for new forms of conditional payments and thus
reducing settlement risks. The major benefits from wholesale CBDC could come from facilitating
cross-border transactions, as discussed in the next section.
2. Among the different possible operational models for a retail CBDC, central banks
around the world are currently mostly exploring the intermediated model. This approach
implies that the central bank issues digital money but delegates functions to financial intermediaries
that interact with end users (IMF, 2022). As an example, the RBI could be involved in the payment
chain of CBDC, from issuance to settlement, maintenance, and R&D, while the distribution and client
service could be undertaken by the private sector. The intermediated model seems best suited to
exploit synergies between the public and private sectors, which could play a key role especially in
light of the successful cooperation between RBI and the private sector in developing the current
retail payment system. The success of this operational model rests on the ability to offer the right
incentives for banks to cooperate with the RBI. At the same time, the RBI could generate additional
beneficial competition in the private payments sector, which in turn could further advance financial
inclusion. For instance, competition to expand the customer base may incentivize the design of
user-friendly features and apps that would expand the access to CBDC.
3. Indian macroeconomic conditions suggest that remunerating a CBDC may not be a

required feature, at least initially. While in theory a remunerated retail CBDC could help
overcoming the zero-lower bound on interest rates, this issue appears more prominent in advanced
economies characterized by a lower natural rate. Other potential benefits, for instance in terms of
1 For instance, see the speech by India’s finance minister Nirmala Sitharaman on February 1, 2022.

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monetary policy transmission, need to be assessed against costs and operational hurdles. 2 Overall, a
digital version of physical cash could be a good first step and remuneration could be added later if
deemed optimal.
4. Regarding the improvement in currency management, potential gains appear limited.

Market analysts estimate that the overall operating costs associated with physical cash amount to
about $3.4 bn, which amounts to about 0.1 percent of GDP. Given that the RBI has no objective to
end the circulation of cash, and most likely physical cash will not disappear, this value represents a
theoretical upper bound. Of course, these potential economic gains should be assessed against the
costs of managing a CBDC, for which estimates are not currently available.
5. While a CBDC could reduce the costs of currency management, it is not clear to which
extent it would improve the efficiency of the payments system in India. The main reason is the
availability of payment providers on the Unified Payments Interface (UPI), that have most of the
attributes of a retail CBDC and even some additional features. The growth in the use of
instantaneous payments has already led to a significant substitution away from other traditional
means of payments (Figure 1). Private providers offer real-time payments at relatively low cost for
both peer-to-peer and peer-to-merchant transactions. They also allow users to perform offline
transactions, which is a crucial feature to expand financial inclusion in a country where 400 million
people are estimated to own feature phones but no smartphones. Given these premises, it is not
surprising that about 80 percent of retail transactions now take place via the UPI platform (Figure 2).
6. The success of UPI and private providers may lead to a lower-than-expected demand
for a retail CBDC, unless the latter has some evident advantage. At this stage, it is not clear
whether a CBDC will offer enough benefits to effectively compete with private payments. On the
contrary, private providers seem to hold some advantages. For instance, the possibility to perform
offline payments using CBDC is still being studied and this technology may not be available soon.
However, a CBDC could prove to be beneficial by providing a public-sector alternative that could
enhance market competition and lower costs.
CBDC to Facilitate Cross-Border Payments
7. International payments suffer from inefficiencies that make transactions slower,

costlier, less transparent, and less accessible when compared with domestic payments
(FSB, 2020). In this respect, India faces similar challenges as other countries, although perhaps of a
larger magnitude given the high volume of remittances (Figure 3). A CBDC could be used in this
respect as an avenue for cross-border payments. How to factor in an international dimension into a
CBDC is currently the focus of the G20 Roadmap for Enhancing Cross-Border payments (BIS, 2022).
The analysis includes the possibility of using both retail and wholesale CBDC. The RBI could opt for
2
By setting the return on CBDC, the central bank would directly control an interest rate that affects the consumption-
saving choice of households and firms, without relying on banks to transmit changes in policy rates to deposit rates.
This process could be slow and partial depending on structural factors and macroeconomic conditions.

INDIA
introducing both a retail and wholesale CBDC, addressing inefficiencies for both retail and wholesale
transactions (HKMA, 2022).
8. International cooperation would be a key factor for success, as it would ensure the
highest degree of compatibility between national CBDCs. While continuing to contribute to
international efforts to develop a cross-border CBDC, India could try to spearhead the process, for
instance by establishing bilateral agreements with major economic and financial partners in the
region. Collaboration with domestic financial intermediaries would still be warranted to fully reap
benefits, for instance in terms of expanding access to a CBDC. Importantly, remuneration is not
necessary as long as the CBDC is cheaper than other alternative means of international payments.
9. Lower-than-expected demand for a CBDC is a relevant risk that needs to be considered.

The introduction of a CBDC could facilitate transactions to and from India. If the latter are strongly
limited, other countries may see their incentives to engage with India diminished. Importantly, the
Government, RBI and NPCI are currently collaborating on connecting the UPI platforms to systems in
other countries. If successful, a CBDC could face lower demand due to the presence of a competitor
for cross-border transactions, as is the case for domestic transactions.
B. Other Risks and Final Considerations
10. The adoption of a CBDC necessarily involves risks. Specific design choices may generate
or intensify risks related to banking disintermediation, capital flow management, operational
disruption, and legal foundations, as discussed in detail in IMF (2018) and IMF (2021). It is not clear
to which extent the authorities can guarantee the same degree of anonymity that physical cash
provides, hindering the introduction of a digital substitute for cash. Safeguards that govern the
collection, use, and sharing of confidential information could partially protect the privacy of a CBDC’s
users. However, full anonymity, would generally not be compatible with anti-money laundering and
combating the financing of terrorism (AML/CFT) and the authorities should keep in mind financial
integrity implications when designing a CBDC.
11. Moreover, the adoption of a CBDC involves operational costs and reputational risks,
especially because of the complexity and novelty of the project. As of now, there are no
estimates for the costs to develop, establish, and maintain the infrastructures needed for a successful
CBDC. Risks associated with treating personal data and effectively dealing with cyber-attacks could
harm the credibility of a CBDC-issuing central bank. Against this background, a relatively low
demand for the CBDC together with high implementation costs could negatively affect the central
bank’s reputation. The presence of important risks, together with the performance of existing
payments providers and uncertainty about economic gains, advocates for a prudent and gradual
implementation of a CBDC.
12. All in all, the above considerations suggest that efforts in India should prioritize a
CBDC that facilitates cross-border payment. While CBDC could also improve the domestic
payment system, this may be a lower priority for India given the efficiency of the domestic payments
system. Capacity for analysis and testing of different types of CBDC should be enhanced, devoting

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particular attention to evaluating the incentives for CBDC adoption by the general public. Finally,
clear and transparent communication about expected benefits, cost and risks should support the
process in order to align stakeholders’ and authorities’ expectations, mitigating reputational risks.

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References
BIS (2022): “Options for access to and interoperability of CBDCs for cross-border payments.”
Chainalysis (2021): “The 2021 Geography of Cryptocurrency Report.”
FSB (2020): “Enhancing Cross-border Payments - Stage 1 report to the G20.”
HKMA (2022): “e-HKD: A technical perspective.”
IMF (2018): “Casting Light on Central Bank Digital Currency,” IMF Staff Discussion Note No. 2018/08
IMF (2021): “The Rise of Public and Private Digital Money: A Strategy to Continue Delivering on The
IMF’s Mandate,” IMF Policy Paper No. 2021/055
IMF (2022): “Behind the Scenes of Central Bank Digital Currency: Emerging Trends, Insights, and
Policy Lessons,” FinTech Notes No. 2022/004
Khiaonarong Tanai and David Humphrey (2022): “Instant Payments: Regulatory Innovation and
Payment Substitution Across Countries,” IMF WP, Forthcoming.

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Appendix VII. Inequality and Poverty in India: Impact of the

Pandemic and Policy Response
India has made significant progress in reducing poverty in recent decades. The economic downturn
associated with the COVID-19 pandemic is estimated to have temporarily increased poverty and
inequality. Government’s expansion of food subsidies has likely provided significant mitigation to the
rise in poverty during the pandemic.
1. India has made significant progress in reducing poverty in recent decades, supported
by high economic growth and expansion in social assistance programs. World Bank estimates
suggest poverty has declined from 40 percent in 2004 to 22.5 percent in 2011—the year of the latest
official household expenditure survey. 1 Various estimates suggest continued poverty reduction
since 2011, albeit to an uncertain degree. (Bhalla et. al, 2022 and Roy and van der Weide, 2022) While
India’s robust growth over the past decade likely contributed to such reduction, the authorities have
also expanded social assistance programs, most notably the 2013 National Food Security Act which
provided enhanced rations of food to the bottom 50 and 75 percent of the urban and rural
population respectively. Broader measures of poverty likely declined as well, reflecting the
government’s development interventions in health and education—for example, saturation of village
electrification and toilets which has been achieved in 2018. Notwithstanding the larger uncertainty,
existing estimates of inequality based on recent, albeit unofficial household surveys (Roy and van der
Weide, 2022) point to a modest decline over the last decade, after increasing during the preceding
decades.
2. Notwithstanding considerable uncertainty, the economic downturn associated with the

pandemic is estimated to have at least Number of people living below $1.9 (PPP) daily
temporarily increased poverty and inequality (million persons)
500
in the near term. A privately provided nationally 450

400 urban rural
representative household survey, which has 350
tracked household income and consumption 300

250
through the pandemic, 2 suggests that the 200
number of people with daily consumption 150

100
expenditures below 1.9 $PPP has increased 50
sharply in 2020 but that it has declined toward 0
the end of 2021 to close to pre-pandemic levels.

While all income groups experienced a decline in Sources: CMIE and IMF staff estimates.
1
Based on official household surveys and the 1.9 $PPP per day threshold. The World Bank estimates differ from
official measures which suggest poverty was around 12.2 percent in 2011-12.
2
We use the CMIE’s Consumer Pyramids Household Survey (CPHS) and supplement it by using the National Family
Health Survey (NFHS) 2015-16 and 2019-2021 to adjust CPHS household weights to improve its representativeness.
For this reweighting procedure, we used assets ownership, demographic, and education variables observed in the
NFHS. For an extended discussion of the CMIE weights please see Bhalla and Das (2022). For the descriptive poverty
and inequality analysis, we are treating the CMIE-CPHS as across-section data, optimizing the weights for each
household every month.

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income during the pandemic, the impact on lower income groups was larger, suggesting a
temporary increase in income inequality. 3 Contrary to income inequality, inequality in terms of
consumption temporarily improved because the top earners cut consumption at a larger magnitude
than the bottom earners.
3. Demographic, education, and labor market characteristics help explain developments

in poverty and consumption inequality during the pandemic. Estimates 4 suggest that households
headed by young and less educated persons faced a higher probability of becoming poor during the
pandemic. Labor market characteristics also mattered, with households headed by casual workers
and workers with temporary contracts facing a higher probability of becoming poor. Being employed
in physical or manual type jobs was also associated with a slightly higher incidence of poverty.
Finally, conducting learning activities and having savings had a positive impact on consumption,
preventing a fall below the poverty line.
Estimated probabilities of becoming poor after the pandemic

(probabilities of becoming below $3.2 PPP at least one month during Apr-Dec 2020)
55%
50% estimated
average
45%
40%
35%
30%
25%
20%
15%
female head
upper sec.
manufacturing
other secondary
transport & comm.
finance, pro., public
other services
youth dominated
up to primary
upper primary
secondary
graduate +
wage/permanent
casual worker
wage/temporary
self-employed
yes
yes
no
no
agriculture
trade& hospitality
education (head) employment status (head) learning saving industry (head)
Sources: CMIE and IMF staff estimates.
3The increase is consistent with the World Bank nowcasting that shows a significant increase in global poverty in
2020 (see: https://blogs.worldbank.org/opendata/pandemic-prices-and-poverty).
4For this regression analysis, we exploit the panel structure of the database. Since the adjusted weight of the same
households could be volatile over time due to the reweighting procedures (footnote 2), we used the averaged
weights (Apr-Dec 2020) for each household so that each household could have one stable weight.

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4. Policy simulations suggest that the Number of people living below $1.9 (PPP) daily
(million persons)
government’s expansion of food subsidies has 500
likely contributed to a reduction in poverty 450

With subsidies Without subsidies
400
during the pandemic. The Indian authorities 350
expanded social assistance during the pandemic, 300

250
including through additional food subsidies, cash 200
transfers and the rural employment guarantee 150

100
scheme. Because the household survey used in 50
the analysis only captures consumption 0

Jan-15 Nov-15 Sep-16 Jul-17 May-18 Mar-19 Jan-20 Nov-20 Sep-21
expenditures, a simulation exercise is conducted Sources: CMIE and IMF staff estimates.
to account for the impact of food subsidies in

our estimates of poverty. Namely, an estimate of monthly per capita value of food subsidies is added
to household consumption expenditures, similar to the approach in Bhalla et al. (2022), targeting the
bottom 50 percent and 75 percent of households in urban and rural areas respectively, using the
current month’s income distribution to determine eligibility. Impact of food subsidies is uncertain
and depends on assumptions on leakage of benefits. Preliminary estimates suggest that food
subsidies significantly lowered the increase in poverty during the pandemic, by about 30-40 percent
based on the 1.9 $PPP threshold. 5
5 This is consistent with evidence from other countries that were able to minimize the effects of COVID through policy
intervention (see, for example Stantcheva (2022), Carta and Philippis (2021), Chety et al.(2020), and Galasso et al.
(2020)).

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References
Bhalla, S., K. Bhasin, and A. Virmani, 2022, “Pandemic, Poverty, and Inequality: Evidence from India”,
IMF Working Paper No: WP/22/69, April 2022.
Bhalla, S. and T. Das, 2022, “What does the evidence show? Consumption, poverty and the labour
market in India -2011/12-present”, National Council of Applied Economic Research.
Carta, F., and M. De Philippis. 2021, “The impact of the COVID-19 shock on labour income inequality:
Evidence from Italy”, Bank of Italy Occasional Paper, 606.
Chetty, R., J.N. Friedman, N. Hendren, and M. Stepner, 2020, “The economic impacts of COVID-19:
Evidence from a new public database built using private sector data”, National Bureau of Economic
Research.
Galasso, V., V. Pons, P. Profeta, M. Becher, S. Brouard, and M. Foucault, 2020, “Gender differences in
COVID-19 attitudes and behavior: Panel evidence from eight countries”, Proceedings of the National
Academy of Sciences, 117(44), 27285-27291.
Mahlernishant, D. G., N. Yonzan., R. Hill., C. Lakner., H. Wu., and N. Yoshida. 2022, “Pandemic, prices,
and poverty”, World Bank Blogs, April 13 2022.
Roy, S. S. and R. Van Der Weide, 2022, “Poverty in India Declined over The Last Decade but not as
Much as Previously Thought”, Policy Research Working Papers, April 2022.
Stantcheva, S. 2022, “Inequalities in the Times of a Pandemic”, National Bureau of Economic

Research.

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Appendix VIII. Evolution of India’s Trade Policy

1. India’s global trade integration increased dramatically in 1990-2010. Reflecting trade
liberalization, India’s average import tariff rate decreased from over 80 percent in 1990 to about
13 percent in 2008. India’s trade openness—measured as ratio of external trade in goods and
services to GDP—steadily increased from 15 percent 40 years ago to about 56 percent in 2012.
Alongside, India’s integration in the global value chain (GVC) has been on the rise from 1990 to 2011,
when the share of foreign value added (FVA) in India’s exports reached nearly 17 percent (Figure 1).
2. In 2000s, India joined a number of regional and bilateral free-trade agreements (FTAs).
Most notably, India joined Asia-Pacific Trade Area (APTA) in 2005 and South Asia Free Trade Area
(SAFTA) in 2006, signed an agreement with MERCOSUR in 2009 and an FTA with ASEAN in 2010.
Moreover, India negotiated bilateral FTAs with its neighbors and trading partners including
Afghanistan, Australia, Bhutan, Chile, Japan, Malaysia, Nepal, Singapore, Sri Lanka, South Korea, and
Mauritius.
3. However, in 2010s the focus of trade policy shifted. The “Make in India” strategy and a
policy of economic self-reliance was announced in 2014. The simple average import tariff increased
from about 13 percent in 2015 to about 18 percent in 2021, which is significantly above the level of
peer countries. Even as India’s integration in GVCs—as measured by the share of FVA in exports—
remained broadly stable, its trade openness ratio declined, reaching a low of 38 percent 2020. Non-
tariff barriers remained elevated, well above the level of peer countries. Despite participating in the
negotiations, India did not join the Regional Comprehensive Economic Partnership (RCEP) at its
formation in 2020. RCEP is an agreement between fifteen Asian countries covering roughly 30
percent of the global population and GDP, including the regional heavyweights Australia, China,
Indonesia, and Japan.
4. India is faced with lower tariffs in its main export markets compared to tariffs it
imposes on imports. India’s average trade-weighted import tariff was about 12.6 percent in 2020,
significantly above the numbers for the peer countries. (Simple average applied import tariff for most
favored nation, MFN, was even higher, at 18.3 percent in 2021.) But India’s applied weighted tariff
faced in major markets was only 2.9 percent in 2020, slightly above peers. 1
5. India’s Foreign Trade Policy (FTP) originally approved for 2015–2020 has been
extended to September 2022. The FTP adopted in 2015 aimed to increase India’s share of global
trade from about 2.1 percent to 3.5 percent and double exports to US$900 billion by 2020. To
achieve these ambitious goals, the FTP formulated several incentive schemes for Indian exporters.
Merchandise Exports from India Scheme (MEIS) and Service Exports from India Scheme (SEIS)
provided exporters tax and custom duties rebates for up to 5 percent of export value. The Export
Promotion Capital Goods (EPCG) scheme allowed imports of capital goods at zero customs duty. The
1
Data sources: WTO, World Tariff Profiles 2022; and WTO databases.

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Interest Equalization Scheme (IES) provided capital loans to export producers at subsidized low
interest rates of 2-3 percent.
6. The applied schemes have been reviewed regularly to ensure their efficiency and
compliance with the WTO rules. From 2021, MEIS was effectively replaced by a new scheme named
Remission of Duties and Taxes on Export Products (RoDTEP), in part because the MEIS was
challenged at the WTO. SEIS and some other export promotion schemes have been suspended as
well, in part reflecting WTO rulings against them. The government engaged in consultations with
industry representatives to develop new export promotion schemes, to be reflected in the new trade
policy.
7. The government’s trade-promotion policies are shifting to complement direct export

support with export infrastructure development. The authorities intensified the use of the Trade
Infrastructure for Export Scheme (TIES) launched in 2017. The scheme focused on developing export
infrastructure, creating better logistic processes, providing “first-mile” and “last-mile” connectivity,
maintaining and enhancing quality, and enforcing strict regulations for export projects. TIES
envisaged the creation of multiple facilities such as border trading posts, quality-testing units,
certification labs, export warehousing and packaging, cold storage provisions, trade promotion
centers, dry ports, development of Special Economic Zones for trade activity as well as ports and
airports cargo terminals.
8. Also, the authorities stepped up the use of incentives designed to directly stimulate
output rather than exports. Production-linked Incentive (PLI) schemes introduced in March 2020
amid the Covid pandemic initially targeted three industries—mobile manufacturing and electric
components, pharmaceutical, and medical device manufacturing. The PLI concept has since
expanded to multiple sectors, to boost India’s manufacturing capabilities and encourage export-
oriented production. PLIs provide qualifying manufacturing companies incentives (subsidies)
amounting to up to 20 percent of the incremental increase in sales of eligible products (compared
with the base year) for a 4-6-year period.
9. India has been recently pursuing new bilateral and regional trade agreements. In 2022,
India signed a Comprehensive Economic Partnership Agreement (CEPA) with the United Arab
Emirates (UAE) and an interim Economic Cooperation and Trade Agreement (ECTA) with Australia,
which are expected to substantially increase bilateral trade in the next few years. India is actively
negotiating new trade agreements with Canada, the UK, the EU, and other countries.
10. Concerns about domestic inflation and food and energy security amid external shocks
gave rise to international trade restrictions. India restricted wheat exports in mid-May 2022,
though the restrictions were relaxed almost immediately to allow some wheat exports to proceed.
Exceptions were allowed for shipments backed by letters of credit that had already been issued and
those to countries that requested supplies to meet their food security needs (such as Egypt). Also in
May, the government put a cap on sugar exports to ensure its domestic availability. Trying to stem
the increase in gold imports, the authorities raised import duties on gold from 10.75 percent to

INDIA
15 percent in July. Furthermore, they restricted wheat flour export by requiring exporters to obtain
permissions for it. The authorities also increased export duties on fuel exports and required that fuel
product exporters supply fuel for the domestic market. New restrictions required oil companies
exporting gasoline (or diesel) to sell to the domestic market the equivalent of 50 percent (for diesel,
30 percent) of the amount sold overseas in FY2022/23. In addition, in September 2022 the
government restricted export of broken rice and introduced a 20 percent duty on exports of all other
varieties of rice except basmati and parboiled rice.
11. India has increased discounted oil imports from Russia. Sanctions on Russia have
resulted in an extraordinary increase in the price discount on the Russian oil URALS compared to the
international oil price benchmark BRENT, to about 30-35 US$/bbl from about 2-3 US$/bbl in regular
times. 2 After the war in Ukraine broke out, the share of Russian crude oil in India’s total volume of oil
imports increased from a mere 1 percent in 2021 to about 20 percent in June 2022. This could have
reduced the average-weighted oil import price for India by up to 6-7 US$/bbl in that month. 3 In
value terms, according to the Ministry of Commerce data, Russia’s share in India’s crude oil imports
increased from 2.2 percent in 2021 to 16.8 percent in June 2022.
12. Further efforts toward investment regime liberalization and tariff reduction could help
deepen integration in global value chains and attract FDI. India’s integration in GVCs has stalled,
at a time when deepening geo-economic fragmentation is creating new headwinds for the
integration process. To overcome the old and new challenges, India’s push for export promotion
should be combined with renewed efforts toward trade and investment liberalization, including
reduction of tariffs (especially on intermediate goods) and lowering of non-tariff barriers (including
for services imports). Together with comprehensive structural reforms, this could help boost exports
and perpetuate the virtuous cycle of trade and resilient growth.
2
Data sources: Thomson Reuters; https://www.neste.com/investors/market-data/urals-brent-price-
difference#8eaa100b.
3
For example, if India imports 80 percent of oil at the international price benchmark and remaining 20 percent at a
price discount of 30 US$/bbl, then the average-weighted oil import price will be by 6 US$/bbl less than the
international price benchmark.

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References
Estefania Flores, Julia, Davide Furceri, Swarnali Hannan, Jonathan D. Ostry, and Andrew K Rose, 2022.
“A Contribution to the Measurement of Aggregate Trade Restrictions.” —IMF Working Paper
2022/001, International Monetary Fund, Washington, DC.

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Figure 1. Trade Openness and Tariff Barriers in India and Peer Countries, 1990-2021
India’s integration in the global value chains

India’s trade openness increased in 1990-2010,
(GVCs) increased in 1990-2010 but stalled in
but then reversed over the last decade.
the 2010s.
India’s average import tariff rate decreased India’s nontariff barriers remain elevated and
radically over 1990-2010 but stalled since. above the level of peer countries.
India’s average tariff protection further … and above the level India’s exports face in its
increased in recent years… main partner countries.

INDIA
STAFF REPORT FOR THE 2022 ARTICLE IV
November 4, 2022 CONSULTATION—INFORMATIONAL ANNEX
Prepared By Asia and Pacific Department
CONTENTS
FUND RELATIONS _______________________________________________________________________ 2
INFORMATION ON THE ACTIVITIES OF OTHER IFIS __________________________________ 4
STATISTICAL ISSUES ____________________________________________________________________ 5

INDIA
FUND RELATIONS
(As of September 30, 2022)
Membership Status:
Joined December 27, 1945; Article VIII.
General Resources Account

SDR Million % Quota
Quota 13,114.40 100.00
Fund Holdings of Currency (Holdings Rate) 9,354.29 71.33
Reserve Tranche Position 3,770.41 28.75
Lending to the Fund
New Arrangements to Borrow 59.22
SDR Department:
SDR Million % Allocation
Net cumulative allocation 16,547.82 100.00
Holdings 13,658.43 82.54
Outstanding Purchases and Loans: None

Financial Arrangements:
Type Date of Expiration Amount Approved Amount Drawn

Arrangement Date (SDR Million) (SDR Million)
Stand-By 10/31/91 06/30/93 1,656.00 1,656.00
Stand-By 01/18/91 04/17/91 551.93 551.93
EFF 11/9/81 05/01/84 5,000.00 3,900.00
Projected Payments to Fund

(SDR million; based on existing use of resources and present holdings of SDRs):
Forthcoming
2022 2023 2024 2025 2026
Principal 0.00 0.00 0.00 0.00 0.00
Charges/interest 12.87 58.20 58.23 58.17 58.20
Total 12.87 58.20 58.23 58.17 58.20

INDIA
Exchange Rate Arrangement:
The exchange rate in India is classified as floating. The exchange rate of the rupee is determined in
the interbank market, where the Reserve Bank of India (RBI) intervenes at times. The RBI’s role is to
modulate excessive volatility so as to maintain orderly conditions. On August 20, 1994, India
accepted the obligations of Article VIII, Sections 2, 3, and 4 of the IMF Articles of Agreement. India
maintains the following restrictions on the making of payments and transfers for current
international transactions, which are subject to Fund approval under Article VIII, Section 2(a):
restrictions related to the non-transferability of balances under the India-Russia debt agreement;
restrictions arising from unsettled balances under inoperative bilateral payments arrangements with
two Eastern European countries; and a restriction on the transfer of amortization payments on loans
by nonresident relatives. The Executive Board has not approved these restrictions.
Article IV Consultation:
The previous Article IV consultation discussions were held in July 2021. The Staff Report (IMF
Country Report No. 21/230) was discussed by the Executive Board on September 17, 2021.
FSAP Participation:
Concluding meetings for the latest FSAP Update were held in Delhi and Mumbai in July 2017—the
FSSA Update report was published in December 2017 (Country Report No. 17/390). A Detailed
Assessment of Observance of the Basel Core Principles for Effective Banking Supervision was issued
in January 2018 and published as Country Reports No. 18/4.
Capacity Development (Technical Assistance and Training):
Recent and planned IMF capacity development and training activities with India are discussed in
Appendix IV of the staff report.
Resident Representative:
A resident representative’s office was opened in November 1991. Mr. Luis Breuer has been the
Senior Resident Representative since July 2019.

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INFORMATION ON THE ACTIVITIES OF OTHER IFIS
Information on the activities of other IFIs in India can be found at:

 World Bank: http://www.worldbank.org/en/country/india/overview
 Asian Development Bank: Asian Development Bank and India: Fact Sheet (adb.org)

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STATISTICAL ISSUES
(As of October 1, 2022)
I. Assessment of Data Adequacy for Surveillance
General: Data provision is broadly adequate for surveillance. However, upgrading and expanding statistics would
help policy formulation.
National Accounts and employment statistics: In January 2015 the Central Statistical Office (CSO) released a
new series of national accounts, with base year 2011/12. In addition to the shift in the base year for measuring
growth, the revisions reflected a review of source data and compilation methods, and implementation of the 2008
System of National Accounts. For current price estimates, the data sources provide adequate coverage of
economic activities, and the methodology is broadly consistent with international standards and best practices.
Nonetheless, an indirect -tax -based extrapolation of trade turnover value from the base year does not provide an
accurate gauge of growth of economy -wide value added from trade. The supply-side data are deemed to be of
better quality than expenditure-side data. There are still some weaknesses in the deflation method used to derive
value added. Also, the compilation of constant price GDP deviate from the conceptual requirements of the
national accounts, in part due to the use of the Wholesale Price Index (WPI) as a deflator for many economic
activities. The appropriate price to deflate GDP by type of activity is the Producer Price Index (PPI), which is under
development. Large revisions to historical series, the relatively short time span of the revised series, major
discrepancies between GDP by activity and GDP by expenditure, and the lack of official seasonally-adjusted
quarterly GDP series complicate analysis. There are long-standing deficiencies in employment data: they cover the
formal sector, which accounts for a small segment of the labor market, as well as the informal sector, and are
available only with a substantial lag.
Price statistics: In early 2011, an all-India Consumer Price Index (CPI) with updated weights was released, which
covered both rural and urban India, with 2009/10 as a base year. In addition, separate corresponding urban and
rural CPI series were published. In early 2015, the CPI weights were updated again using 2011/12 expenditure data
and the CPI series was revised from January 2015. The CPIs are published with a lag of about one month. There
are also four other CPIs, each based on the consumption basket of a narrow category of consumers (namely
industrial workers, urban and non-manual employees, agricultural laborers, and rural laborers). With the exception
of the industrial workers’ CPI which is based on weights from 2016, the other indices are based on weights that
are over ten years old. The weights for the existing wholesale price index (WPI) are from 2011/2012. A recent TA
mission supported the authorities in the development of a new producer price index (PPI) for agricultural and
industrial activities, with a target release date of December 2023. The new PPI will better align with national
accounts concepts and therefore allow for more accurate estimation of real output in India. A quarterly House
Price Index (HPI) is published by the Reserve Bank of India (RBI) and is based on transaction-level data received
from the housing registration authorities in ten major cities. This has helped surveillance in this area, though
geographic coverage remains limited, and price data for commercial real estate are not available. The Labour
Bureau, Ministry of Labour and Employment have started producing a series covering rural wage data, which
helps surveillance, but economy-wide wage data are scant.
Government finance statistics: The Ministry of Finance (MoF) is responsible for compiling and disseminating the
Government Financial Statistics (GFS). Although, under the G-20 Data Gaps Initiative, authorities engaged both on
expanding the GFS reporting coverage to include state government and to compile quarterly consolidated general
government data these have not been formalized, discussions on the general government operations is yet to

INDIA
include extra-budgetary funds, local governments, and social security funds. There is also scope to improve the
analytical usefulness of the presentation of the fiscal accounts from which GFS are derived.
Monetary and financial statistics: The RBI web site and the RBI Bulletin publish a wide array of monetary and
financial statistics, including reserve money and its components, the RBI’s survey, the monetary survey, liquidity
aggregates (outstanding amounts), interest rates, exchange rates, foreign reserves, and results of government
securities auctions. In 2011, the RBI started publishing a weighted -average lending interest rate and other lending
rates at annual frequency. The frequency and quality of data dissemination have improved substantially in recent
years.
The RBI reports data on several series of the Financial Access Survey (FAS), including mobile and internet banking,
mobile money, gender-disaggregated data, and the two indicators (commercial bank branches per 100,000 adults
and ATMs per 100,000 adults) adopted by the UN to monitor Target 8.10 of the Sustainable Development Goals
(SDGs).
The RBI reports monetary data to STA in non-standard format. The RBI also provides "test" data using the
standardized reporting forms. However, the test data do not contain sufficient details (e.g., instrument, currency
and counterparty sector breakdowns) to construct a complete and analytically useful picture of India’s financial
sector that is also consistent with the guidelines provided in the Monetary and Financial Statistics Manual. In
addition, data reported cover depository corporations only, and data on other financial corporations such as
insurance corporations, pension funds, and investment funds are not covered.
The RBI reports 13 core Financial Soundness Indicators (FSIs) and nine additional FSIs for deposit takers as well as
one core and two additional FSIs on real estate markets on a quarterly basis for publication on the IMF’s FSI
website. The RBI could improve its coverage of the additional FSIs to include other sectors, notably, other financial
corporations, nonfinancial corporations, and households.
Financial sector data: As for reporting of financial soundness indicators (FSIs), all 12 core and 11 encouraged FSIs
for deposit takers as well as three FSIs for real estate markets are reported on a quarterly basis. FSIs for other
financial corporations, nonfinancial corporations, and households are not reported.
External sector statistics: The concepts and definitions used to compile balance of payments statistics are broadly
in line with the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6).
However, trade data have valuation, timing, and coverage problems. Data on imports of goods in the balance of
payments are registered in c.i.f. prices while the BPM6 requires the f.o.b. pricing. Data on trade in goods prices,
volumes, and composition are not regularly available on a timely basis. External debt statistics are available on a
quarterly basis with a one quarter lag. Estimates of short-term external debt are presented on an original maturity
basis. The short-term maturity attribution on a residual maturity basis is available quarterly (and includes residual
maturity of medium- and long-term nonresident Indian accounts). The international investment position
(IIP) statistics cover the sectors prescribed in the BPM6 and these data are disseminated within three months of the
reference period in respect of quarterly data.1 Coverage of direct investment positions data is hampered by the
absence of appropriate legal or institutional authority. India disseminates monthly the Data Template on
International Reserves and Foreign Currency Liquidity as prescribed under the SDDS. More up-to-date information
on certain variables, such as total foreign reserve assets, foreign currency assets, gold, and SDRs, are available on a
weekly basis and are disseminated as part of a weekly statistical supplement on the RBI web site.
________________________________
1
The IIP as published by the RBI values equity liabilities at acquisition cost, while the Fund uses market prices, resulting in
substantial differences.

INDIA
II. Data Standards and Quality
Subscriber to the Fund’s Special Data Dissemination A Report on Observance of Standards and Codes—Data
Standard (SDDS) since December 1996. Uses flexibility Module; Response by the Authorities, and Detailed
options on the timeliness of employment, Assessments Using the Data Quality Assessment
unemployment, and general government operations. Framework was published on April 2, 2004.

INDIA
8
India: Table of Common Indicators Required for Surveillance

(As of October 1, 2022)
INTERNATIONAL MONETARY FUND
Date of latest Frequency of Frequency of Frequency of

Date received
observation Data7 Reporting7 Publication7
Exchange Rates 10/01/22 10/01/22 D D D

International Reserve Assets and Reserve Liabilities of the
09/23/22 09/30/22 W W W
Monetary Authorities1
Reserve/Base Money 09/23/22 09/28/22 W W W
Broad Money 09/09/22 09/22/22 BW BW BW
Central Bank Balance Sheet August 2022 09/16/22 W W W
Consolidated Balance Sheet of the Banking System 09/09/22 09/22/22 BW BW BW
Interest Rates2 10/01/22 10/01/22 D D D
Consumer Price Index August 2022 09/12/22 M M M
Revenue, Expenditure, Balance and Composition of
2021/22 02/16/22 A A A
Financing3 – General Government4
Revenue, Expenditure, Balance and Composition of
August 2022 09/30/22 M M M
Financing3– Central Government
Stocks of Central Government and Central Government-
Apr-Jun 2022 09/30/22 Q Q Q
Guaranteed Debt5
External Current Account Balance Apr-Jun 2022 09/29/22 Q Q Q
Exports and Imports of Goods and Services August 2022 09/14/22 M M M
GDP/GNP Apr-Jun 2022 08/31/22 Q Q Q
Gross External Debt Apr-Jun 2022 09/29/22 Q Q Q
6 Apr-Jun 2022 09/30/22 Q Q Q
International Investment Position
1
Any reserve assets that are pledged of otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other
means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.
2
Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.
3
Foreign, domestic bank, and domestic nonbank financing.
4
The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.
5
Including currency and maturity composition.
6
Includes external gross financial asset and liability positions vis-à-vis nonresidents.
7
Daily (D); weekly (W); bi-weekly (BW); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).
Statement by Krishnamurthy Venkata Subramanian, Executive Director for India,
Sanjay Hansda, Senior Advisor to Executive Director
and Simanchala Dash, Advisor to Executive Director
November 28, 2022
1. The Indian Authorities thank the Staff for constructive discussions and convey their
appreciation to the Management and the Staff for their continued engagement. The
Authorities look forward to continuing this healthy partnership. This BUFF statement focuses
on providing a complete and true picture of the Indian economy.
2. This statement brings together our current perspectives as well as those gathered from
last year’s Article IV discussions. Like every other economy in the world, the Indian
economy was impacted adversely by the pandemic, the conflict in Europe, the imposition of
sanctions, and the synchronized tightening of monetary policy in advanced economies.
However, it witnessed a V-shaped recovery in 2021-22 despite the devastating 2 nd wave in Q1
and the 3 rd wave in Q4. This was largely due to robust and swift policy initiatives by the
Authorities. In the first quarter of the current year 2022-23, the economy has posted an
impressive 13.5% growth, notwithstanding the drag from net exports in the wake of the global
slow-down.
3. Driven by the surge in crude oil and other commodity prices, and adverse supply shocks
emanating from geopolitical tensions, inflation has persisted at elevated levels. In a cross-
country framework, we observe a strong positive relationship between 3-year growth and
change in inflation, implying that fiscal stimulus, which is now causing unprecedented
inflation world-wide, drove 3-year GDP growth in all countries barring India and Germany.
India thus stands out as the positive outlier because of supply-side measures and the sharply
targeted demand-side stimulus. India’s fiscal stance during the pandemic was a calibrated
expansion in public expenditures with a sharp focus on boosting capex to strengthen the
supply side, which also helped to restrain inflationary pressures. The economy increasingly
adapted to the new remote work environment, beginning with COVID, with enhanced use of
digitalization.
4. The policy package that included fiscal, monetary, and financial measures, which
provided support to businesses and households during the pandemic, has turned even more
focused and targeted now. India, in contrast to most other economies, continued its agenda of
structural reforms during the pandemic and beyond. These wide-ranging structural reforms,
2
which are focused on enhancing the efficiency of all factor markets, include labour reforms,
an ambitious program of privatization and asset monetization.
5. While the IMF expects GDP to grow at 6.8% in 2022-23 and 6.1% in 2023-24, RBI
projects it to grow at 7.0% and 6.5% respectively. The ongoing structural reforms also
suggest that the economy will continue to perform. The September 2022 IIP (Index of
Industrial Production) data is now above the pre-pandemic level.
6. Headline consumer price inflation is projected at 6.7% during 2022-23 and is expected to
soften to 5.8% by Q4 of 2022-23 and further to 5.0% in Q1:2023-24 [currently at 6.8% y-o-y
in October 2022]. Thus, after the blip set in recent months (supply disruptions, oil prices),
inflation is projected to remain above the upper bound of the Reserve Bank’s target of 4 (+/-
2)%in Q3:2022-23. Inflationary trends are being closely monitored, and the monetary
authorities have decided to remain focused on withdrawal of accommodation to ensure that
inflation remains within the target going forward, while supporting growth.
Structural Reforms
7. The Government has been steadfast in pursuing structural reforms even during the
pandemic. As noted by staff, wide-ranging structural reforms are currently being implemented
by the Government. Expansion of domestic production-linked incentive schemes to labour-
intensive and green sectors, state renewable purchase obligations, and agriculture and labour-
market reforms are expected to support sustainable and equitable growth. Labour market
reforms are expected to improve labour market functioning, support formalization, enhance
female participation, and expand social security benefits for workers.
8. We agree with Staff observations that advancing agriculture and land reforms would
address market distortions, increase efficiency, and improve productivity. Implementation of
climate-friendly policies is critical for long-term structural reforms towards achieving green
and inclusive growth. India continues to play a leading role in the implementation of the
climate goals under the Paris agreement. India has recently updated its NDCs (Nationally
Determined Contributions) and seeks to achieve Net Zero status by 2070. The drive towards
renewable sources of energy and reducing carbon footprint in the economy has yielded
significant results on the ground. However, the Authorities believe that implementation of the
Paris Agreement on climate change must be based on the principles of equity and common
but differentiated responsibilities and respective capabilities, as agreed to, and be
3
accompanied by climate financing and technology transfer. Further, the idea of a carbon price
floor, mooted by the Staff, may not be a feasible option as it has huge welfare implications,
particularly considering the high indirect fuel taxes on carbon in India.
Fiscal Issues
9. The Authorities largely agree with the Staff for maintaining an accommodative fiscal
policy stance in the near term until uncertainties ease, and to have a credible medium-term
fiscal consolidation plan, including amendments to the FRBM Act thereafter, to maintain
market confidence and fiscal space. The central government fiscal deficit is budgeted at 6.4%
of GDP in the current year and the Authorities are strongly committed to reducing it to 4.5%
of GDP by 2025-26. Authorities do not share the staff’s view that India’s fiscal space is at
risk. Public debt remains very much sustainable given favourable growth dynamics and the
strong commitment to consolidation. Given real growth of about 7%, inflation of about 4%
expected this decade (i.e., nominal growth of about 11%), and interest rate of about 7%, the r-
g differential will be sharply negative, which will drive the debt/GDP ratio down sharply. In
fact, the Economic Survey 2020-21 showed that in a worst-case scenario where the real
growth is only 4% in the next 10 years, public debt is sustainable. The results also showed
that even at high primary deficits, low real growth, and high nominal interest rates, India’s
debt will remain sustainable. Debt sustainability risks are also mitigated as the bulk of the
public debt is domestic currency denominated, contracted at fixed rates and held by residents.
Overall, revenue performance has been buoyant in the current year driven by better
compliance. Streamlining of GST with an e-invoice system, GST audits, closer scrutiny of
returns and rate rationalization are reflected in augmented tax revenues. Personal income tax
and corporate tax collections have been strong.
Monetary Policy
10. RBI has tightened monetary policy in view of persistent inflationary pressures – a
cumulative increase of 190 bps in the policy repo rate (currently at 5.90%), a 50-bps increase
in the cash reserve ratio and discontinuation of the government securities purchase program.
Systemic liquidity also moderated due to capital outflows. The Central Bank (Reserve Bank
of India) would stay the course in its continued focus on withdrawal of accommodation to
ensure that inflation remains within the target going forward, despite the challenges
associated with spillover from advanced economies’ monetary policy actions and the
difficulties with consistent forward guidance in a highly uncertain environment. There has
4
been limited Rupee depreciation vis-à-vis USD in 2022 so far as compared with many other
emerging market currencies. Going forward, exchange rate flexibility would continue to be
the first line of defence in absorbing external shocks, with interventions limited to addressing
disorderly market conditions. We agree with the staff that India’s external position remains
sufficiently strong with the current level of reserves and strong FDI and portfolio flows to
withstand external shocks in the near term. It may be highlighted that although CAD is likely
to widen in FY2022-23, the projection of CAD at 3.5% of GDP seems to be on the higher
side. In our view, moderation in crude oil prices (Indian basket below US$ 100 since August
2022), and resilience of services exports and remittances may keep the CAD within 3% of
GDP in 2022-23.
11. RBI has launched the first pilot project in CBDC - Wholesale segment on November 1,
2022, for settlement of secondary market transactions in government securities. Settlement in
central bank money would reduce transaction costs by pre-empting the need for settlement
guarantee infrastructure or for collateral to mitigate settlement risk. Going forward, other
wholesale transactions, and cross-border payments will be the focus of future pilots, based on
the learnings from this pilot. The other pilot: CBDC - Retail segment is planned for a launch
shortly.
Financial Sector
12. The financial sector continues to be robust and resilient with banks well-capitalized and
a strong regulatory framework for supervision in place. As pointed out by staff, credit quality
indicators have improved, reflecting stronger corporate and financial sector balance sheets as
also the overall resilience of the financial sector. A key distinguishing feature of India’s
insolvency regime has been its focus on resolution rather than liquidation. Asset quality
review is an ongoing feature of the supervisory framework, which helps in the early detection
and identification of potential and actual NPAs, which are then sought to be resolved under
the IBC (Insolvency and Bankruptcy Code). We, therefore, do not see any reason for the
concern expressed by the Staff that, “incentives to recognize and address problem loans at an
early stage are crucial’ to ‘structurally improve banks’ asset quality” as there are already
robust systems in place to identify/recognize NPAs.
13. Further, we do not subscribe to the Staff’s view that slow progress in the ‘pre-pack’
route for the resolution of MSMEs is due to a lack of resources when, actually, there have
been hardly any filings under this route. Staff’s concern on banks’ exposure to sovereign
5
bonds in a rising interest rate scenario appears overstretched in view of substantial HTM
holding as also the mitigating effect of investment fluctuation reserves with banks.
14. As noted by staff, the new scale-based regulatory framework for NBFCs, effective
October 2022, aims to further reduce potential regulatory arbitrage between banks and
NBFCs. While digitalisation including the recent steps of offline and feature-phone-based
payments will surely improve access to financial services, the Authorities strongly believe
that fintech advances need to be consistent with the regulatory framework, containing
potential vulnerabilities.
Pandemic and Poverty Alleviation
15. Like the rest of the world, the pandemic led to a decline in economic activity, affected
inequality and hurt the poor the most. Recognizing this, and as part of its strategy to combat
the expected poverty increase, Authorities significantly expanded income support, especially
for those at the bottom of the income pyramid. For example, food subsidies increased five
times in FY 2020-21 (April-March) from the pre-pandemic 2019-20 level. While it declined
in 2021-22, it remains nearly three times its pre-pandemic level. In 2022-23, it was budgeted
to decline marginally. However, with the extension of the free food program of the
Government to end-December 2022, the level of support is expected to sustain in 2022-23 as
well.
16. The rules of allocation of food subsidies were also changed. The implementation of the
new One-Nation-One-Ration Card policy meant that the bottom two-thirds of the population
eligible for food subsidy could now access it from anywhere in India rather than be restricted
to the state of their registration. This change was especially beneficial for the migrant and
poor workers. Further, given the large pool of human capital and the limited extent of
pandemic-related learning losses, authorities do not see any impact on potential growth over
the medium term, although they pointed out that policies are being implemented to ensure
catch-up for learning losses during the pandemic.
17. In deriving their conclusions on poverty trends, it appears that the Fund’s Article IV
report may not fully reflect the significant support provided by the government to mitigate the
impact of the COVID-induced declines in economic activity and their effect on poverty.
18. We would also like to express our reservations about the data used to estimate poverty,
employment, and inequality. While the weights used from the unofficial data sources have
6
been adjusted, the poverty estimates continue to rely on the World Bank methodology, which
uses the URP (i.e., uniform resource period) method whereas the official estimates use the
MMRP (i.e., modified mixed reference period) method.
19. Under the risk assessment matrix, the risk likelihood with respect to large-scale social
discontent, we would like to indicate that there is no such evidence of inflation causing social
discontent in India, especially as India has not experienced hyperinflation. Even during the
current pandemic, inflation has not increased abruptly reflecting coordinated monetary-fiscal
measures.
Potential Growth
20. The staff has estimated the potential growth to be about 6% in the medium term in the
baseline scenario and 7% in the upside scenario. The RBI has, however, placed it in a range
of 6.5-8.6%. The staff analysis is based on unofficial employment surveys. Particularly,
female labour force participation rate (FLFPR) is estimated to be very low. On the contrary,
FLFPR based on official statistics, if adjusted in line with the UN SNA would be closer to the
levels in South Asian and Middle Eastern economies. Further, the staff analysis appears to
have missed out on improvements in the quality of employment. The envisaged declining
employment-to-population ratio is also contrary to expectations with the emphasis on
manufacturing, going forward.
21. Emerging Market Economies are evolving and more complex, and it requires greater
analytical rigour to comprehend the economic dynamics and the underlying growth impulses,
especially when key structural reforms are changing the economic path for such economies.
As fellow economists, we appreciate staff efforts and urge an approach where the different
boundary conditions of such economies are incorporated into the standard paradigms that are
primarily focused on describing advanced economies.

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IMF Country Report No.

• An Informational Annex prepared by the IMF staff.

• A Statement by the Executive Director for India.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

International Monetary Fund

© 2022 International Monetary Fund

IMF Executive Board Concludes 2022 Article IV Consultation

Executive Directors concurred that the authorities have appropriately responded to

Growth (in percent)

Prices (percent change, period average)

Saving and investment (percent of GDP)

Memorandum item (in percent of GDP)

• Fiscal policy to ensure medium-term sustainability. The additional support to

• Monetary policy tightening. Inflation pressures have led to an appropriate shift

• Financial sector policies to maintain financial stability and support growth.

HEADWINDS WEIGH ON THE ECONOMIC OUTLOOK ______________________________________________ 7

FISCAL POLICY TO ENSURE MEDIUM-TERM SUSTAINABILITY ___________________________________ 8

MONETARY POLICY TIGHTENING ____________________________________________________________________12

FINANCIAL SECTOR POLICIES TO MAINTAIN STABILITY _________________________________________14

STRUCTURAL REFORMS FOR A GREEN AND INCLUSIVE RECOVERY____________________________17

OTHER ISSUES ___________________________________________________________________________________________22

2 INTERNATIONAL MONETARY FUND

5. Financial Markets Developments _________________________________________________________27

INTERNATIONAL MONETARY FUND 3

BROAD-BASED ECONOMIC RECOVERY IS UNDERWAY

2. Inflation is elevated. Inflation has been

4 INTERNATIONAL MONETARY FUND

Figure 1. Labor Market Developments

2018 2019 2020 2021 2022 Gender Age Education level

Source: MOSPI. Sources: CMIE; and IMF staff estimates.

Employment to Population Ratio (Urban) Unemployment Rate (Urban)

2019 2020 2021 2022 2019 2020 2021 2022

INTERNATIONAL MONETARY FUND 5

1 Temporary measure introduced in July, effective until end-2022.

6 INTERNATIONAL MONETARY FUND

HEADWINDS WEIGH ON THE ECONOMIC OUTLOOK

Text Table 1: Medium Term Outlook, 2018/19-2027/28

General government finances

Money and credit

INTERNATIONAL MONETARY FUND 7

8 INTERNATIONAL MONETARY FUND

FISCAL POLICY TO ENSURE MEDIUM-TERM

• The central government

INTERNATIONAL MONETARY FUND 9

10 INTERNATIONAL MONETARY FUND

16. Policy efforts Potential Consolidation Scenario

17. High-quality spending on infrastructure, education and health should be protected to

INTERNATIONAL MONETARY FUND 11

MONETARY POLICY TIGHTENING

12 INTERNATIONAL MONETARY FUND

INTERNATIONAL MONETARY FUND 13

FINANCIAL SECTOR POLICIES TO MAINTAIN STABILITY

• These government guarantees can be unwound. Government guarantees successfully

14 INTERNATIONAL MONETARY FUND

INTERNATIONAL MONETARY FUND 15

STRUCTURAL REFORMS FOR A GREEN AND INCLUSIVE

INTERNATIONAL MONETARY FUND 17

18 INTERNATIONAL MONETARY FUND