The International Monetary Fund (IMF) projected India ’s Gross Domestic Product
(GDP) growth at 8.3% this year and 7.3% in 2007 but but cautioned financial
managers on inflation due to oil prices and strong domestic demand and budget
deficit. Acknowledging fiscal corrective measures by the
Reserve Bank of India (RBI), the IMF disagreed with Finance Minister P. Chidambaram saying that “further tightening may be needed” from its already four-year high 6%.
The IMF cautioned India on high public debts or budget deficits asking for sustainable fiscal positions for the medium-term and not be carried away with pressure to spend more. It counseled “further consolidation” at both the Federal and state levels through “broadening the tax base and reducing subsidies.” The IMF also asked India to slow its Special Economic Zone (SEZ) ideas saying tax sops “becomes yet another give-away which the government cannot afford.” Finance Ministry anticipates a loss of Rs. 175,000 crore (USD 38 billion) in direct taxes, customs and excise duties over the next five years because of the SEZs. In sharp disagreement, the Industry and Trade Ministry estimates that the SEZs will net Rs. 44,000 crore (USD 9.5 billion) revenue for the government in a year.