Yokohama: India needs to integrate more with the rest of Asia, ease its foreign direct investment rules further and delegate more powers to state governments to achieve the country’s full growth potential, Asian Development Bank president Takehiko Nakao said on Thursday.
“India has very strong potential but its markets should be more integrated. Power of state governments must be balanced with central government’s power,” Nakao told journalists on the first day of the 50th annual meeting of the ADB in the Japanese city of Yokohama. “An integrated Indian market which is more deregulated, more welcoming to foreign direct investment, should be linked to other parts of Asia and the world. India as compared to China has not reached its full potential yet.”
Nakao praised Prime Minister Narendra Modi’s efforts to integrate India into one market through the goods and services tax (GST).
He said the Indian economy had stabilized after experiencing minimal impact from the November demonetisation of high-value banknotes.
“There was some impact from demonetisation (on the Indian economy) but that is now stable. The reform impetus is gathering momentum,” he added.
On the rising tide of protectionism in the developed world, Takao said the trend does not impact the ADB’s growth projections for India or the rest of Asia at this moment, “although we must make efforts to keep up the momentum of further opening of trade”.
ADB has forecast India to grow 7.4% in 2017-18 and 7.6% next year. In 2016-17, the economy is estimated to have grown 7.2%.
Takao said though Asian economies had benefitted from a free trade system, protectionist measures do not pose any major threat yet. “There is Brexit but the effect of Brexit will take some time to show. We have to wait to see what kind of new arrangement the UK and Europe get into. I think there are many efforts also to make international trade system more open including RCEP (Regional Comprehensive Economic Partnership),” he added.
On the issue of rivalry with the China-led Asian Infrastructure Investment Bank (AIIB), Takao said while the AIIB was focusing solely on infrastructure building in a linear system, ADB is also extending policy-based lending for social sector in addition to infrastructure financing.
“About $1.73 billion investment is required in developing infrastructure in developing nations. The development financing institutions like ADB and World Bank are proving only 3% of the funds required. The financing need is so large that both the institutions don’t need to rival,” Takao said.
Takao said he had nine rounds of discussions with AIIB president Jin Liqun in the last two years on co-financing of projects. “We have agreed to co-finance three projects, two last year and one this year. We also discussed how we can use local currency for co-financing. So, there are many areas in common where we can cooperate,” he added.
Asit Ranjan Mishra is in Yokohama at the invitation of the ADB to cover its 50th annual meeting.