Dubai: The International Monetary Fund (IMF) on September 18 forecast economic recovery in India in 2003 due to good monsoon, but warned that eight per cent growth target will remain elusive without economic reforms and checking the mounting fiscal deficit.

"In India, while growth is expected to pick up later this year on the back of a recovery in the agricultural sector following last year's drought, the expansion remains well below the eight per cent rate targeted by the authorities, undermining official goals for reducing poverty and regional disparities," the IMF said.

In its report "World Economic Outlook – 2003", it said a key issue which remained for India was the slow pace of fiscal and structural reforms.

"With the general government deficit set to reach about 10 per cent of the gross domestic product (GDP) for a fifth year, and debt plus recorded contingent liabilities nearing 100 per cent of GDP, fiscal policy is clearly on an unsustainable path," the IMF noted.

It also expressed concern over the "absence of consolidation efforts in this year's Budget and delays in introducing the Value Added Tax (VAT)".

The IMF, in its outlook report, also downplayed the all time high foreign exchange (FOREX) reserves of India, saying this has complicated the implementation of monetary policy.

"The limited degree of exchange rate flexibility, in the face of continued strong foreign exchange inflows, has contributed to a record build up of foreign exchange reserves, complicating the implementation of monetary policy," the IMF report said.

It said, "Accelerating structural reforms, including ending regulatory impediment to consolidation in labour-intensive industries; labour market and bankruptcy reforms, and agricultural and trade liberalisation remain essential to stimulate economic growth and reduce poverty (in India)."

On China, the outlook report said the expectation remains that Severe Acute Respiratory Syndrome (SARS) will constitute a temporary shock, with no lasting impact on the medium-term growth outlook, and activity is likely to rebound from the third quarter.

This will be helped by continued strong investment and rapid credit expansion, including for consumer lending.

"The strength of the external position, the desirability of gearing monetary policy towards domestic stabilisation objectives and the need to facilitate adjustments to structural changes over the medium term underscore the importance of moving gradually to greater rate flexibility," the report said on China.

It said fiscal consolidation remains a key objective for the medium term, given the sizeable contingent liabilities associated with banking weaknesses, pension reform costs and the need to improve the social safety net and health care.

Banking reform, faster asset disposals by asset management companies and restructuring and privatisation of state-owned enterprises remain key structural reform priorities for China, the IMF report said.

PTI