The Asian Development Bank feels Indian policy-makers must look beyond the ongoing global financial crisis and address the issue of pending reforms in the financial sector to sustain growth in the long term.
“The current financial crisis provides an opportunity to think hard about the financial sector reforms. It is critical to distinguish between immediate steps needed to manage the present crisis and long-run reforms needed to sustain growth and reduce the likelihood of a future crisis,” said ADB Executive Director AK Lahiri.
He suggested that the monetary policy should focus on inflation, capital account convertibility should be introduced and banking industry should be restructured by removing the restriction of 10 per cent voting rights, and foreign banks allowed to set up subsidiaries or joint ventures in India.
“Let us hope that more measures will be forthcoming in the coming months and years to develop the missing bond, currency and derivatives market with the right level of transparency and appropriate safeguards. This will be important to move to an inflation-targeted monetary policy,” Lahiri said while delivering the annual Purshottamdas Thakurdas Memorial Lecture.
“When looking at the financial sector reforms, let us look as much at the opportunity part of the current global crisis as to its danger,” he said.
Commenting on the recent measures announced buy the Reserve Bank of India, Lahiri said the regulator so far had done a good job but it was important to stay ahead of the curve and cut rates. “Policy decision is a continuous process, so it is always important to stay ahead of the curve and cut the key rates when the economy is slowing down,” he added.