The World Bank (WB) said in its India Development Update report, India needs to maintain its reform momentum to encourage private investment, exports and reverse the current situation of the pandemic. Although, the global lender warned of projecting a sharp contraction for the economy in its revised outlook scheduled for coming October, due to the continued spread of the corona virus and deteriorating economic condition and global position.
The WB said, the economy stuck to its May projection of -3.2 percent growth in the ongoing fiscal. In the current situation, fast-evolving context these projections are likely to be revised as new information is incorporated because the daily number of cases continues to increase resulting in several states and districts re-imposing lock downs. The revised projections would likely a steeper contraction in the economy. The global prospects remained muted, demand revival would be considerably delayed as neither private consumption, nor government spending, nor external demand would be available to uplift aggregate demand.
According to WB, India’s public finance fiscal deficit moving to 6.6 percent of gross domestic product (GDP) in the ongoing fiscal stating it would hold on elevated at 5.5% in the next year. It also predicts elevated public debt levels to peak at 89 percent of GDP in FY23 before decreasing. The report shows that five major areas for reform which highly focused on the financial sector. It was critical to maintaining financial sector stability. As per the report, it recommends that the Reserve Bank of India build up the sector’s safety nets and liquidity and capital buffers.
Junaid Ahmad, WB country director in India, said that the countries that invest in sectoral reforms include infrastructure, labour and land, human capital and provide that their national systems are linked to the Global Value Chains, are more able to respond to various risk and are better placed to take more advantage of any such global shifts. In the report, reforms were needed to widen the capital markets to increase the availability of long term finance, especially to help banks from asset-liability mismatches.
By supporting non-banking financial companies in supporting credit to the real sector, the WB also suggested that exploring the role of fintech lenders in providing low-cost credit to MSME to restart activities after the lock down. It also recommended that scaling back the priority sector lending policy for public lenders and to consider a mix of private capital injections in various state banks and also full privatization in some regions.
According to Poonam Gupta, lead economist and Dhruv Sharma senior economist at the WB, It was encouraging that the government is moving to a more selective and strategic public sector footprint in the financial sector. In the report, that international experience shows that can improve the banking sector’s ability to provide credit, maintain effective financial inter mediation, and low fiscal exposure. The report said that by developing such reforms would put the economy back on the 7 percent growth path last seen in FY18.
