Saturday, January 8 2005 16:53 Hrs (IST) - World Time -

New Delhi: IMF said today (Jan 8, 2005) Tsunami disaster would not impact 6-6.5 per cent growth projections for India this fiscal, but the country's high fiscal deficit was a cause for concern.

"6-6.5 per cent growth in this fiscal is a reasonable projection. Going forward things will go well," IMF chief economist Raghuram Rajan said, stressing the need for more radical reforms, particularly in the labour sector like introduction of 'hire and fire' system.

Asked if Tsunami would impact the growth prospects, he said, "We will stick to the earlier 6-6.5 per cent growth projections for India." Though a number of people were affected in coastal India, the economy would bounce back, he added.

India should take advantage of the growth and undertake reforms; it should improve infrastructure and make labour market more flexible, Rajan said.

He also stressed on agricultural growth and said that despite deficient monsoon, Indian economy has shown resilience and is poised for high growth.

Rajan said that India cannot become a financial hub unless it has full capital account convertibility (CAC).

"Full CAC cannot happen before the country reduces its fiscal deficit significantly and also releases public sector banks from having to finance the Government debt."

Referring to the FRBM Act, he said that once the revenue deficit is wiped out and fiscal deficit becomes manageable the country can target implementing full CAC from 2009.

The IMF chief economist said full capital account convertibility can also help the country to manage its external sector well.

"There is a general consensus that fiscal deficit needs to be controlled. This is not only a matter of accounting but also a matter of concern. With lower deficit and full CAC the country's financial sector could play a very important role," he said while suggesting that India, which is in between two major financial centres of the world, Tokyo and New York, can also become a financial hub.

Asked about his 'budget wish', he said India should make progress in reducing fiscal deficit.

Rajan also said the employment guarantee scheme would have an effect on the budget in that it would raise expenditure. At the same time, it might result in savings on other social schemes.

Rajan also asked the Indian Government to encourage innovations and experiment so that innovative social schemes could be implemented instead of "throwing money" on unproductive schemes.