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 cautioned about inflationary pressures in the Indian economy, but was appreciative of the Reserve Bank's efforts in this direction.
"There is 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 benefitting 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 US is moderating on account of the slowdown in the housing market, the growth prospects are 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.
Asia, the IMF chief said is the most dynamic region in the world, which is growing in importance every passing year with forecasts for its growth at 7.25 per cent in 2006 and seven pe cent in 2007.
"What happens in Asia affects not only more than 2.5 billion people, who live there but the world as a whole," he said.
However, he cautioned that further volatility in global financial markets could affect capital flows, growth prospects and inflation in the region.
"...Asia is particularly sensitive to growth prospects in the United States and oil prices... while the region has shown
resilience to the financial market volatility in May and June of this year, further volatility in global financial markets
could affect capital flows, growth prospects and inflation," he said.
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