In spite of a recent devastating drought, India's economy has fared well and should enjoy solid growth this year and next, as will neighboring Pakistan, the International Monetary Fund said on Wednesday.
India's economy picked up steam last year and now enjoys a stronger international position, which will allow the country to accelerate trade liberalization and adopt a more flexible exchange rate, the Washington-based lender said in its semiannual World Economic Outlook report.
India's economy is poised to grow 5.1 per cent this year and 5.9 per cent in 2004, with higher, yet still modest inflation.
However, risks remain, the fund said, as the government's fiscal deficit has grown to 10 per cent of gross domestic product and remains largely unchecked, the fund said.
The lender therefore urged the passage of proposed fiscal responsibility legislation, as well as a commitment to key reforms needed to strengthen the financial system.
In neighboring Pakistan, growth also picked up, while prices remained in check. The fund expects the country's economy to grow 5.0 per cent this year, and 5.1 per cent in 2004.
Despite the encouraging outlook, the IMF urged Pakistan to lower its fiscal deficit to protect the economy from external shocks, especially in the glum environment brought about by the US-led war with Iraq.