HomeEconomy NewsImplementing economic reforms essential to reverse India's current slowdown: World Bank

Implementing economic reforms essential to reverse India's current slowdown: World Bank

India needs to continue to implement critical reforms in key areas such as health, labour, land, skills and finance to come out stronger from the impact of the COVID-19 pandemic.

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By Pradeep Suresh  August 19, 2020, 8:18:17 PM IST (Published)

Implementing economic reforms essential to reverse India's current slowdown: World Bank
India needs to maintain reform momentum to reverse current economic slowdown, the World Bank said in its latest report.  The bank said in its India Development Update, a biannual flagship publication, that only through reforms aimed at enhancing productivity can the country overcome the COVD-19 impact.


"India needs to continue to implement critical reforms in key areas such as health, labour, land, skills and finance to come out stronger from the impact of the COVID-19 pandemic. These reforms should aim at enhancing the productivity of the Indian economy and spur private investments and exports," it said.

As per the release, fiscal deficit of the central government is likely to increase to 6.6 percent of GDP this fiscal year while the combined deficit for states and central government could rise to around 11 percent. Further, central government's deficit is expected to be over 5.5 in the next financial year.

The release also added that the central government's debt-to-GDP could peak at around 89 percent in FY22/23 before gradually declining.

The release also pointed out several other downside risks that could hit the economy in the future including continuing spread of the virus and further deterioration in the global outlook among others.

Speaking about the immediate relief and recovery measures and sectoral reform measures announced by the government, the release said furthering such reforms will help put the economy back on a 7 percent growth path.

These reforms include:

i). Strengthening fiscal reforms

In order to instil fiscal discipline in handling COVID-19 related implications, the report suggests India may:

  • Reassess subsidies to leverage any scope for efficiency gains;

  • Evaluate how much can be borrowed domestically and externally;

  • Generate non-tax revenues more aggressively; and

  • Link the repayment of new borrowings to disinvestment receipts.


 ii). Financial sector reforms

To put the financial sector on a sounder footing, the report identifies specific areas of reform. These include:

 Financial sector stability. The RBI’s continued focus on risk-based regulation and supervision will be important as the temporary forbearance measures are phased out. Further, strengthening of financial sector safety nets; close monitoring of liquidity and capital buffers; and regulatory and institutional framework for debt restructuring and insolvency could help deal with any spike in non-performing loans.

Reforms in the non-banking finance company (NBFC) sector. Reforms in the NBFC sector are needed to support its role in channelling credit to the real sector. In order to diversify the funding base and to strengthen the NBFC sector, recently launched liquidity schemes for NBFCs could be institutionalised. It would also be important to continue strengthening risk-based regulation and oversight of NBFCs.

 Deeper capital market reforms. Deeper capital markets are critical for increasing the availability of long-term finance. The report calls for the government to continue its focus on easing demand and supply-side constraints, and to build on recent initiatives. The report also suggests revisiting investment guidelines for institutional investors to crowd in long-term finance and address asset-liability mismatch issues.

 Role of fintech. The fintech sector has the potential to close the gap in access to financial services and help firms, especially MSMEs, access much-needed credit and liquidity. The report suggests mainstreaming fintech to reach firms faster and at a lower cost.

 Moving to a more strategic public-sector footprint. Recent efforts including consolidation of public sector banks and strengthening of corporate governance are encouraging steps towards a more strategic public sector footprint. Moving forward, gradually scaling back the statutory requirement for state banks to provide liquidity, as well as the priority-sector lending policy, will help reduce market distortions.
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