Indian economy is rebounding strongly providing a golden opportunity to tackle fiscal challenges decisively but steady rise in debt of the central and state governments could constrain the growth, according to a new International Monetary Fund report.
India's economic growth was strong in fiscal 2003-04 and its economic ties with the rest of the world have strengthened, with services exports -- largely information technology -- leading the way, the IMF said in its publication 'Finance and Development'.
The IMF also notes that there is a steady rise in the debt of both the central and state governments, which, "over the medium term, could constrain growth."
"Current account surpluses and strong capital inflows have heated foreign reserves, reducing external vulnerability. The recovery was strengthened in agriculture, following a severe drought in 2002-03, but services are increasingly driving India's economy," it said.
Indian exports benefited from competitiveness in the past three years despite the recent strengthening of the rupee against the US dollar. Despite fiscal deficits, interest rates have fallen with global integration, and inflation is moderate, it added.
At the same time, it points out that while the fiscal situation improved in 2003-04, it "still poses serious challenges and risks, with deficits diverting savings from more productive areas."