IMF‘s Chief Economist Maurice Obstfeld, who will retire by the end of this month, lauded the fundamental economic reforms carried out by the Modi government like GST and the Insolvency and Bankruptcy Code. He called India’s growth to be “very solid” over the past four years and praised the government for its stand on financial inclusion.
While addressing the journalists, he said, “India under the government of PM Narendra Modi has carried out some really fundamental reforms. These include the Goods and Services Tax (GST), the Insolvency and Bankruptcy Code…A lot of what they have done on financial inclusion has been really important.”
Putting his opinion in a nutshell, he said, “growth performance has been very solid”.
He added, “I mean, not so much in the third quarter of this year, but generally it has been quite solid.”
Emphasizing on maintaining the momentum, he said, “There are important vulnerabilities, so it is important for the reform momentum to be maintained even as an election comes up and for the path of fiscal adjustment to be maintained.”
Highlighting the risk of shadow banking, he said that it has become much more evident in the last few years.
He also expressed that IMF does not want politicians “manipulating” central banks for political ends.
Commenting on the Indian government’s relationship with RBI, he said, “There is debate over whether it’s better for financial stability to be the remit of the central bank or an independent regulator… the UK in 1997, split them, then put them back together again. I’m not going to take a position on that… But I think… the central bank does have to be intimately concerned with financial stability to some degree and with the payment system.”
He further clarified, “We need to think about what is the best institutional framework in which financial policy can be set with regard to the long-term stability of the economy, not just to performance over political horizon.”
He backed RBI by saying, “Well, I think they (the RBI and the Indian government) have reached an agreement on how to proceed. I think their (RBI) message that financial stability is important is correct. And it is important for the government to heed that.”
On the issue of certain countries like the US, India, Argentina, and Turkey trying to curb the independence of their central banks, Obstfeld stated that the central banks’ role as a financial regulator is critical.
He added, “Central banks have much greater power than you thought. They are fundamentally involved in financial stability policy, in fiscal policy.”
Maurice Obstfeld has been serving as IMF’s Chief Economist for more than three years. After his retirement, he is expected to return to the University of California, Berkley.
Gita Gopinath, Indian American economist from the Harvard University, would replace him from the first week of January.