• India needs to improve the way state-owned banks are run by bolstering board-level autonomy, the International Monetary Fund said in a report, adding that the government should consider eventually privatizing them.
• This is needed to improve incentives to enhance the efficiency of bank operations and foster more disciplined lending practices by banks. A first step would be to strengthen the quality and independence of these banks’ boards, and privatization could also eventually considered.
• Projecting India’s economic growth to recover in 2018-19 and strengthen in 2019-20 as stability-oriented macroeconomic policies and progress on structural reforms continue to bear fruit, the IMF said that high foreign reserve buffers and strong FDI inflows had helped contain external vulnerabilities.
• However, more can be done to sustain the recent foreign direct investment inflows and remove trade barriers. These include: reducing trade documentation requirements and procedures, lowering tariffs, continuing to improve the business climate, and improving governance.
• The IMF listed higher global oil prices and tighter global financial conditions as key external risks that had grown in recent months. Domestic risks include tax revenue shortfalls and delays in addressing the twin bank-corporate balance sheet problems.
• The RBI would need to gradually tighten monetary policy further due to rising inflation, driven mainly by higher oil prices and a falling rupee.
• The RBI raised the repo rate for the second straight bi-monthly meeting by 25 basis points to 6.5%, while warning about the inflationary pressures.
• The average inflation is likely to rise to 5.2% in 2018-19 from 3.6% in the previous year.
• The IMF projected global crude oil prices to average $72 a barrel in 2018-19, up from $62 in its earlier forecast.