Visiting International Monetary Fund (IMF) Managing Director Rodrigo de Rato
said that “There is a need to make the financial system more efficient” and the
“structural reforms” is required for India “more capable of benefiting from
world economy.” He said inbuilt and unreformed “Structural impediments” in the
Indian system stifling “flexibility in the markets” and affecting the financial
structure need to be addressed to deal with “bigger competition.” Interestingly,
the
Reserve Bank of India (RBI) said pretty much the same thing just a few days ago.
Although Indian Gross Domestic Product (GDP) has been
averaging 8% the last 3 years and expected to continue, de Rato warned of inflationary pressures but praised the RBI for “their efficiency.” Praising “the Value Added Tax (VAT) reforms,” he said it is not important “what has been done in the past, but how can we face the future” and prodded the Government towards additional reforms.
Referring to the
failed World Trade Organizations (WTO) Doha Round negotiations, de Rato said ominously that there are “more clouds on the horizon” than a year ago such as inflation risks and high oil prices adversely affecting both inflation and growth. Although the US economy is slowing down because of its over-leveraged housing market, other parts of the world such as Europe , Japan , China , and India continue to do well.
The major focus now is on Asia as “What happens in Asia affects not only more than 2.5 billion people, who live there but the world as a whole” because it has become the dynamic growth engine of the world with forecasts of 7.25% growth in 2006 and 7% in 2007. He was however cautious on volatility that could global financial markets and therefore capital flows required to feed the growth engine
