IMF asks Indian govt to be "mindful"

Source : IBNS
Last Updated: Mon, Mar 25, 2013 18:39 hrs

New Delhi, Mar 25 (IBNS) The International Monetary Fund (IMF) has cautioned the Indian government to being "mindful" about extending guarantees on the bank loans taken for the public - private partnership projects (PPP) in the infrastructure sector in the wake of high level of public debt in the country.

In a presentation given to the ASSOCHAM, IMF's Senior Resident Representative for India and Nepal, Thomas Richardson has said that India's infrastructure financing is a bank-led model but the government has to be "mindful of risks of taking on contingent liabilities that would include guarantee, PPP and other types of potential fiscal liabilities given that India has a high level of public sector debt to begin with".

He said the Reserve Bank of India (RBI) is justified in keeping a cautious approach so that risks are not concentrated.

"We think that the RBI has been quite right to worry about asset-liability mismatches and concentration risks some ways (it)could do more if necessary but certainly compared to China they have been quite prudent," Richardson said.

India's public debt, though far better than several debt-ridden countries in the west, is quite high at around USD 750 billion.

Richardson said there is a need to deepen bond markets for helping finance the key infrastructure projects. "There is a need to develop bond market as a way of financing infrastructure development."

At the same time, he underscored the "importance of developing well regulated and sophisticated pension system as a way of transforming effectively demographic dividend into investment. "It is very important to develop pension scheme, given demographic dividend in the country."

"Half of India's 1.2 billion population is below the age group of 25 years. It is taken as a demographic advantage for the country provided human resource development gets priority in the national scheme of things," said ASSOCHAM President Rajkumar N Dhoot.

More from Sify: