IMF official urges India to relax FDI rules, undertake more economic reforms

London, Sep 19 (ANI): India must further liberalize its rules on foreign investment and resolve controversial tax issues to improve investor confidence and boost capital inflows, a senior official at the International Monetary Fund (IMF) has said.

"It's not just the money that comes in, but it's actually all the other spillovers in terms of knowledge and increases in industrial productivity, etc," the Wall Street Journal quoted Laura Papi, Assistant Director and Head of the IMF Mission for India, as saying.

Faced with a dramatic slowdown in the economy and warnings from ratings firms that the country needs to quickly boost capital inflows and narrow its fiscal deficit, India has taken several steps last week to allow more foreign investment and slash government subsidies on diesel, the paper said.

Last week's policy steps could "boost medium-term productivity and growth," Papi said, but added that the April-June GDP growth data highlighted "some of the spillovers of the growth slowdown."

According to the paper, India's economic situation remains worrisome, as the "sharper (economic) slowdown has not been accompanied by a commensurate decline in inflation," which means that there are "important domestic factors at play" such as supply bottlenecks, Papi said.

She also agreed with the Reserve Bank of India's (RBI) stand of keeping lending rates unchanged despite pressure from corporates and the government as a rate cut could further accelerate inflation, the paper said.

"A demand stimulus is not needed," the paper quoted Papi, as saying.

Papi also said that the Indian government shouldn't fret too much about fiscal and current-account deficits and should focus on the structural reforms required for the economy's long-term benefits that would sharpen the targeted subsidies to people in the lower income group, thereby reducing the chances of wastage, the paper said. (ANI)