The International Monetary Fund has given a warning to Indian government against macro-financial risks which emerged from the government ownership of the private sector banks and even advocated that the Indian government must privatise these lending institutions in order to mitigate these risks.
In its review under Article IV, IMF also highlighted the external vulnerabilities such as rising import bills and trade war initiated by the trump administration which could affect the Indian economy as a whole.
IMF underscored the importance of a comprehensive plan to improve the governance, internal controls, and operations of public sector banks, including by considering more rapid withdrawal of public ownership.
The review report hailed the decision of Reserve Bank of India to increase the interest rate to keep a check on money supply in the market to check inflation. The review was done on the basis of RBI announcing the increase in repo rate in the month of June. The central bank went another step ahead with the rate increase in August also.
The IMF also suggested some of the measures to check risks which include amending labour laws and regulations to increase formal employment, especially the employment of women. The IMF was of the opinion that the series of a measure would lead to increased productivity and assist India to harness its young workers.
