IMF asks India to make the financial system more efficient

To make itself more capable of benefiting from the world economy, India has to make its financial system more efficient and carry forward structural reforms to sustain high economic growth, says International Monetary Fund (IMF).

India’s economic growth is however averaged about eight per cent in the last three years but some inflationary pressures are also building, IMF said.

The international organization’s Managing Director Rodrigo de Rato who was otherwise appreciative of the Reserve Bank's efforts in the field of economic growth, said, "There is need to make the financial system more efficient and with bigger competition there is the need for structural reforms to make India more capable of benefiting from the world economy."

R. de-Rato, who was previewing the forthcoming annual fund-bank meeting in Singapore on September 19, concerned over the inflationary pressures in the Indian economy, said, “Monetary authorities and their efficiency is very important.”

Certainly, structural hindrances, not only in terms of flexibility in the markets but also in terms of infrastructure, are a major question in the Indian agenda for the future, de Rato said.

Calling India as one of the countries that has been changing in a positive direction recently, the IMF chief asserted that the Fund see the Government reform agenda as a very important one as the VAT reforms of last year showed. “But of course the question here is not so much what has been done in the past, although what is happening today has roots in the past, but how we can face the future,” de Rato said.

In his response to a query about India's reported reservations on the IMF executive board's Thursday decision to immediately increase the voting power of China, South Korea, Turkey and Mexico, de Rato said that it was for individual countries to explain their position and he had 'respect for any position'.

On Asian economy, de Rato said, "Japan appears to have put deflation behind it. China and India continue to grow strongly." He further said that Asia although is the most dynamic region in the world, which is growing in importance with every passing year with forecasts for its growth at 7.25 per cent in 2006 and seven per cent in 2007, but high oil prices, a slowing U.S. economy and financial market volatility are the key risks to Asia's robust economic growth.

"What happens in Asia affects not only more than 2.5 billion people, who live there but the world as a whole," he said.

The annual meetings of the World Bank and IMF in Singapore will furnish favorable circumstances to discuss the world economy and the surveillance role of IMF in helping economies individually, and the role of the economy as a whole to continue in a growing path in the future, de Rato asserted.