Congress Cites IMF Report to Critique Modi Government’s Economic Policies

New Delhi: The Congress party on Thursday cited an International Monetary Fund (IMF) report to highlight sluggish private investment growth in India, emphasizing the need for policy reforms to stimulate consumption, enhance economic predictability, and rationalize trade policies.

Congress General Secretary (Communications) Jairam Ramesh pointed out that the IMF’s latest India Article IV Consultation Report dedicates an entire section to "Reigniting Private Investment in India," which he described as an implicit critique of the Modi government’s economic management.

According to the report, private corporate investment has been lackluster, with nominal investment growth decelerating from 21% in 2022-23 to 13% in 2023-24. Ramesh also noted a continuous decline in investment in machinery and equipment—crucial for expanding production capacity—as a percentage of GDP. Additionally, manufacturing sector capacity utilization stood at just 75.8% in Q3 of 2024, with firms anticipating sufficient production capacity to meet demand for the next six months. This, he argued, reflects a broader slowdown in consumption growth.

"Without sufficient disposable income in the hands of consumers, demand for goods and services remains weak. As a result, manufacturing firms are unable to fully utilize their existing production capacity, leaving them with little incentive to invest in further expansion," Ramesh stated.

The report also raises concerns over India's declining share in global Foreign Direct Investment (FDI), which dropped from approximately 6.5% in 2020 to around 2% in 2023. The IMF attributes this decline in part to India's trade policies, which Ramesh described as an "open-door policy for China and protectionism for the rest of the world." He argued that this approach has deterred foreign investors from producing for export markets while also discouraging domestic investment due to fears of Chinese industrial dumping.

Another key issue flagged by the IMF is the composition of India’s labor force. While official data suggests rising labor force participation, much of this increase is driven by self-employment and unpaid family work, indicating a deterioration in job quality. Moreover, the report highlights a concerning trend of rising agricultural employment—a reversal of the typical economic development trajectory where labor shifts toward industry and services.

Ramesh reiterated the Congress party’s long-standing criticism of the Modi government’s economic policies, citing demonetization and the flawed implementation of the Goods and Services Tax (GST) as key contributors to economic distress. He asserted that despite government rhetoric, the real challenge in reviving private investment lies in addressing structural economic issues.

He outlined a three-pronged strategy to tackle India's economic slowdown:

1. Boosting mass consumption through real wage growth, which has stagnated over the past decade.
   
   
2. Enhancing economic policy predictability, reducing "knee-jerk" policy decisions, ending "tax terrorism," and moving away from favoritism toward select business entities.
   
   
3. Revamping trade policy, with a stronger focus on preventing Chinese industrial dumping and deeper integration with global value chains, particularly in labor-intensive manufacturing.

According to Ramesh, these measures are critical to bridging the gap between government rhetoric and economic reality, ensuring a more sustainable path for India’s economic growth.