Mumbai: India has to make its financial system more efficient and continue the structural reforms to enable the economy to make maximum gains from global economic growth, says the International Monetary Fund (IMF).

Structural reforms, not only in terms of achieving market flexibility but also in terms of infrastructure, are key questions for the Indian economy in the future, IMF managing director Rodrigo de Rato said at a press briefing.

While India continued to grow at rates above 8 per cent in the last three years, inflationary pressures have also been building. Rato said, "So, in that respect, monetary authorities and their efficiency is very important and it has been shown already, as it is the need to make the financial system more efficient and with bigger competition."

India, Rato said, is one of the few countries that has been changing in "a very positive direction... (and) we see the government's reform agenda as a very important one as, for instance, the VAT reform of last year." He added, "The question here is not so much as what has been done in the past, although what is happening today has roots in the past, but how we can face the future."

The IMF executive board, meanwhile, has increased the voting power of China, South Korea, Turkey and Mexico with immediate effect.

"The initial ad hoc increase will only correct about one-third of the very heavy under representation of four countries that by every measure you use are under-represented. Many other countries are under-represented too, but these four cases were accepted by the board as ones that were much more out of line than others," Rato said.

"At present, I think that all members recognised that relative quotas and voting shares do not adequately respond to the reality of the world economy of the year 2000. Asia is a good example but it's not the only example. I want to say that very clearly," he added.

The IMF board resolution has to be approved at the Fund-Bank annual meeting in Singapore beginning September 19. The annual meetings of the World Bank and the IMF will provide an opportunity to discuss the world economy and the surveillance role of IMF, and the role of the economy as a whole to continue in a growing path in the future.

There are under-represented countries in Asia as there are under-represented countries in other areas of the world. But for an institution that wants to be legitimate in the world, having economic weight as the centre of how countries express their views and have their voting power, it needs to rebalance that situation regularly.

While growth in Asia remains strong, he said that some modest rebalancing of growth is likely as exports moderate with slowing global growth, especially in the US market.

While China and India continue to grow strongly, China is increasingly becoming a driver of growth in Asia and Japan is continuing to expand. Other countries in Asia and Africa are also enjoying a continuation of the strong growth as a result of Asian expansion, he said.

While that outlook is good, the risks remain and policymakers will have to take the global economy into consideration. Asia faces risks that are similar to those of other countries and Asia is particularly sensitive to growth prospects in the US and oil prices, he pointed out. And, despite the resilience of its financial markets, volatility in global financial markets could affect capital flows, Rato warned.

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