IMF sees 10% growth potential

International Monetary Fund (IMF) First Deputy Managing Director Annie O Kreuger today said the Indian economy had the potential to grow at 10 per cent annually if the right kind of policies were adopted.

In her address at the Bankers' Conference (Bancon) 2004, Krueger said, "India has the potential to do better, given the right mix of policies. A growth of something like 10 per cent is feasible for a number of years."

She said while the Indian economy had made "rapid strides" over the last few years, a sustained level of high growth was the key to reducing poverty levels.

"Sustaining a high rate of growth is the key to poverty alleviation," Krueger said.

Stressing on the need for better risk assessment by banks, she said, "Better the risk assessment, better the credit direction and better the regulation, the more resilient the economy will be to external shocks."

Krueger said Indian banks needed to expand operations globally if they wanted to be successful in spreading risks.

"As the Indian economy grows in size and complexity, the financial sector must also become wider and deeper to spread risks. The banks also need to think globally to spread risks and they should strive to become a one-stop shop for all financial products," she said.

Krueger said Indian banks needed to cut down their non-performing assets, as they tied down banks' productive assets.

These NPAs not only proved a handicap to specific banks but also threatened the entire financial sector, she said.

Emphasising the need for removal of restrictions, she said the Indian economy grew by leaps and bounds only after the 1990s, when the country initiated economic reforms, which made India more outward looking.

She, however, cautioned that a strong and effective regulator was necessary for stability in the banking and hence the financial sector.

In a separate development, the World Bank today said the country was likely to post a gross domestic product (GDP) growth of between 6 and 6.5 per cent as against the Tenth Plan target of 8 per cent growth in the current fiscal.

"I think it would be between 6 and 6.5 per cent. It is going to be less than the government target of 8 per cent," Michael Carter, country director (India), World Bank, told reporters here.

He said the main reason for India failing to maintain the rate of growth was because the last fiscal year was a good one in terms of agricultural production.

"Achieving the 8 per cent target was difficult even as the country was doing well," Carter added.

The Reserve Bank of India, in the busy season credit policy had revised its GDP forecast for the fiscal to 6-6.5 per cent.