IMF asks India to make financial system more efficient

Our Banking Bureau
02 September 2006

Mumbai: India has to make its financial system more efficient and continue the structural reforms to enable the economy to make maximum gains from global economic growth, says the International Monetary Fund (IMF). Structural reforms, not only in terms of achieving market flexibility but also in terms of infrastructure, are key questions for the Indian economy in the future, IMF managing director Rodrigo de Rato said at a press briefing.

While India continued to grow at rates above 8 per cent in the last three years, inflationary pressures have also been building. Rato said, "So, in that respect, monetary authorities and their efficiency is very important and it has been shown already, as it is the need to make the financial system more efficient and with bigger competition." India, Rato said, is one of the few countries that has been changing in "a very positive direction... (and) we see the government''s reform agenda as a very important one as, for instance, the VAT reform of last year." He added, "The question here is not so much as what has been done in the past, although what is happening today has roots in the past, but how we can face the future."

The IMF executive board, meanwhile, has increased the voting power of China, South Korea, Turkey and Mexico with immediate effect.

"The initial ad hoc increase will only correct about one-third of the very heavy under representation of four countries that by every measure you use are under-represented. Many other countries are under-represented too, but these four cases were accepted by the board as ones that were much more out of line than others," Rato said.

"At present, I think that all members recognised that relative quotas and voting shares do not adequately respond to the reality of the world economy of the year 2000. Asia is a good example but it''s not the only example. I want to say that very clearly," he added.

The IMF board resolution has to be approved at the Fund-Bank annual meeting in Singapore beginning September 19. The annual meetings of the World Bank and the IMF will provide an opportunity to discuss the world economy and the surveillance role of IMF, and the role of the economy as a whole to continue in a growing path in the future.