Even as the Union budget for 2012-13 has come in for severe criticism from various quarters for not being ‘bold' on reforms and has having been a ‘lost opportunity', International Monetary Fund (IMF) Managing Director Christine Lagarde on Tuesday lauded the government's decision to cap subsidies at 2 per cent of the Gross Domestic Product as ‘reform' and a good step forward, coming as it has amidst the ongoing global uncertainties.

On her first visit to India as chief of the IMF, Ms. Lagarde said: “The decision of [the Indian] government to cap subsidies at 2 per cent of GDP, I think that is a solid anchoring of the role of subsidies … We are encouraged to see there is a continued path towards fiscal consolidation; that there is a determination to improve the tax code; there is a determination to cap the subsidies at two per cent; all of those measures are good measures.”

Ms. Lagarde, who flew in from China on a two-day visit, met Finance Mininster Pranab Mukherjee and Commerce and Industry Minister Anand Sharma on Sunday and participated in a conference on ‘China and India: Sustaining high quality growth' here on Tuesday.

Expressing the multilateral lending agency's keenness on implementing quota reforms so as to provide more voting rights for emerging nations such as India and China, Ms. Lagarde viewed India's projected growth rate at 7 per cent for next fiscal as ‘significant' but pointed to the vulnerabilities and fragile zones that remain in the global economic landscape. “Change is in the air”, she said, especially to point out that India and China are the leading members of the IMF.

The IMF chief pointed out that even as the global situation was better than before. “The situation is not as grave as it was three months ago ... [the global economy] is further away from the abyss,” she said although the prospects of oil supply disruption remained a major concern.

“If there was, for instance, a major shortage of export of oil from Iran, it will certainly drive prices up, at least for a period of time. We believe that it will be in the range of 20-30 per cent … sudden and brutal rise in the price would have serious consequences on the global economy at large and will impact particularly the oil importing countries and amongst them low income countries,” she said.

Noting that the global financial crisis has taught many lessons, the IMF chief said: “We learnt that there is a strong inter-connection between economies and everybody has been affected by the crisis. We also understood that financial sector and financial institutions were high contagious agents during the crisis,'' she pointed out.

In India, particularly, she said it was pleasing to see [post-Budget] that there would be continued interest in encouraging capital investment to address bottlenecks in infrastructure, especially in power sector.

“We are keen to see FDI investment to surge in India and to that end, a favourable business climate will be helpful in going forward,” said.

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