Rajan’s exit will not hurt bank reforms: World Bank

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NEW DELHI: The banking reforms unveiled by the government and the central bank are unlikely to stall in the aftermath of RBI governor Raghuram Rajan’s decision not to seek a second term as the country’s macroeconomic policies are strong, a top World Bank official said on Monday.
“I really want to point out that India has really very strong macroeconomic policies and an effective and conservative supervisor. So there is no reason to expect that (banking reforms) to change,” WB India director Onno Ruhl said when asked about Rajan’s decision and its impact on banking reforms.
“I don’t have the ability to predict the future, I just have to say that we fully respect Dr Raghuram Rajan’s personal decision,” Ruhl said.
The Indian economy will continue to post robust growth in the coming years, the latest India Development Update of the World Bank said. It said India’s economy expanded at a faster pace in financial year in fiscal year 2016 even as a number of its growth engines stalled. Agriculture – having faced two consecutive drought years – rural household consumption, private investments, and exports have not performed to potential.
The oil bonanza most directly benefited the government, which for the first time in five years exceeded its revenue collection targets and used the resources to contain the fiscal deficit, transfer more resources to states, and spend more on infrastructure. Capital spending by the central government was ramped up, its efforts amplified by state governments that had additional resources from larger fiscal devolution.
But it was urban households who were the main drivers of growth in FY 2016. The manufacturing and services sectors, which expanded 7.4 and 8.9%, respectively, also created urban jobs. Inflation abated, primarily because of lower food prices. Lower inflation raised real incomes, and allowed RBI to cut interest rates, which favoured the financially-connected urban households.
To remain on this growth path and sustain growth at 7.6% into fiscal year 2017, the challenge for the Indian economy is to activate the stalled engines – agricultural growth and rural demand; trade; and private investment, while ensuring that demand from urban households and public investments, what the World Bank describes as the working engines of the economy, do not run out of fuel.
The dissipation of the large boost from historically low oil prices in the past year will make this a challenging task, but prospects of a normal monsoon will help, the World Bank said.