Global investors feel that the Indian “elephant is ready to run” after sustained economic reforms, a top IMF official has said, but underlined the need for implementing these reforms and having a sound banking sector balance sheet for a steady growth path.

Changyong Rhee, Director of the Asia and Pacific Department at the International Monetary Fund (IMF), also praised the Modi government for doing well in the area of reforms.

Changyong -- who oversees the IMF’s work in the region, including its lending operations and bilateral and multilateral surveillance of economies ranging from China, Japan, and India to the Pacific Islands, -- said that investors are telling him that after four years of impressive economic reforms, “the elephant is now ready to run’’.

“I think, I would rather emphasise implementation. If India can lead global growth like China in the last decade; you have the potential, you have the population, you have the market size...everything. Implementation is actually the key, he said.

Referring to the 7.4 per cent growth rate, he said, at this moment it was one of the highest growth rates among large emerging economies. “Now India’s growth rate is higher than China’s growth rate. Many countries are looking at India, whether India can be another growth leader as China in recent decades,” he noted.

“India already has many good plans....There are many, but not as much progress. That was the complaint from the investors from abroad,” he said.

He said now the Indian government was working on structural reform and the coming elections will be very important.

“What we are saying is that the coming election will be very important, but we believe and we hope that the Modi government would not slow down the reform effort and implementation (of reforms). Because that will determine India’s future,” he said.

“So, we really hope that this election would not derail the Modi government’s efforts to reform,” the senior IMF official said. “And, once the elephant starts running, it would have a positive impact on the global economy,” he said.

Global financial crisis

He said when advanced economies were slowing down due to the global financial crisis, it was China’s high growth which maintained global growth. “So now that China’s growth rate has come down,..the emergence of India economy is very good news because it can be another pole, which can maintain global and regional growth, he said.

“Also, India has to open up more. India has been a very domestically-oriented economy, but now with the high growth, India has to open up, has to have more international linkages such that you’ll have lots of spillovers. So I think the world actually can benefit a lot if India’s elephant can run,” Changyong said.

There are several important reforms that have been tried and implemented, the IMF official said, adding that India is a good example of having bold reforms, compared with other countries in Asia and globally.

Demonetisation, GST

Noting that at this moment, India is recovering from a short-term slowdown due to the implementation of several reforms especially demonetisation and implementation of the GST, he said now India is coming back to a steady growth path.

“Yes, there can be some hiccups in the implementation of reform. Some people may say that in the country, several ATM machines are running out of cash and GST implementation has some problem here and there. Yes. But why don’t you look at the bigger picture? GST implementation can help India’s development and India can actually become more integrated, he said.

When asked about a double-digit growth rate, he said higher growth rate ambition is only feasible with parallel structural reforms but achieving a higher growth rate with a stimulus policy could be damaging to the economy.

Banking scandal

Responding to a specific question on the recent scandal in the Indian banking sector, he refuted the impression that the Indian banking sector is facing a crisis.

“Not a crisis. But Indian banks, especially the state-owned banks, need to address the nonperforming asset (NPA) issue and the balance sheet. So that’s why we believe that the Modi government’s effort to recapitalise state-owned banks is very important, because without having a very strong balance sheet their lending ability will be limited. Then it would be very difficult to support a seven percent growth rate, he said.

“In order to have a higher growth rate in the medium term, you need to have very sound bank balance sheets to meet the increasing demand for loans. So as a prerequisite, you need to have a sound banking sector balance sheet. So in that sense the recapitalisation, given the existing NPAs, is a very important step,” he said.