Focus on financial reforms: IMF

The International Monetary Fund has said India should make its financial system more efficient and hasten structural reforms to sustain high economic growth, which averaged about eight per cent in the last three years.

IMF Managing Director Rodrigo de Rato also cautioned about inflationary pressures in the Indian economy, but was appreciative of the Reserve Bank's efforts in this direction.

"There is a 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," de Rato told a group of journalists from Asia Pacific.

He was previewing the forthcoming annual fund-bank meeting in Singapore later this month. "Certainly structural impediments not only in terms of flexibility in the markets but also in terms of the structure are a key question in the Indian agenda for the future," the IMF Chief said.

He said though India's growth has averaged about eight per cent in the last three years, some inflationary pressures are building. "In that respect, monetary authorities and their efficiency is very important and has been shown already," he added.

"India is one of the countries that has been changing in a very positive direction recently. We see the government reform agenda as a very important one as the VAT reforms of last year showed. But the question here is not what has been done in the past. But how can we face the future," de Rato said.

On global economy, de Rato said whereas the pace of expansion in the United States was moderating on account of the slowdown in the housing market, the growth prospects were encouraging elsewhere in the world.

"Europe has been above most people's expectations. Japan appears to have put deflation behind it. China and India continue to grow strongly," he said.

However, there are "more clouds on the horizon" than a year ago"" inflation risks, high oil prices having the potential of adversely affecting both inflation and growth and the major setback of the Doha Round.

On the prospects of Asia's economic growth, the IMF said that high oil prices, a slowing US economy and financial market volatility are the key risks to the region's robust economic growth. Oil prices are unlikely to fall dramatically, said Rato, urging countries to learn to cope with soaring fuel costs.

"Asian growth prospects continue to remain bright," Rato said in the online conference with Asian reporters from Washington.

The IMF said in April that Asia was expected to post rapid economic growth this year despite inflation and avian flu risks, led by a booming China and India along with a resurgent Japan. It said emerging Asia would grow an average 7.9 per cent in 2006 and 7.6 per cent in 2007 after 8.2 per cent last year.

"While the outlook is good, there are in Asia also some near-term risks that I think policymakers have to take into consideration," Rato said.