IMF RAISES INDIA’S GROWTH FORECAST TO 7.2 % THIS FISCAL


The International Monetary Fund (IMF) has forecasted that India will grow 7.5% in 2015-16, up from 7.2% in the current year.

Important observations made by the Report:

  • The report stressed the urgency of certain key reforms, including the bottlenecks in the energy, mining and power sectors; infrastructure gaps, land acquisition processes and environmental clearances.
  • The report says that India’s vulnerabilities have receded more than those of most emerging markets and sentiment has been revived.
  • The Indian economy is reviving, helped by positive policy actions that have improved confidence and lower global oil prices. To continue on this trend, India needs to revitalize the investment cycle and accelerate structural reforms.
  • The IMF report also said that India’s economic profile recently got a lift as the country improved the way it measures economic output.
  • The recent move to introduce a flexible inflation-targeting framework has also received appreciation as it will help deliver low and stable inflation, and diminish the prospect of renewed bouts of high inflation.

UNUSED PRIORITY SECTOR LENDING FUNDS TO BE DIVERTED TO MUDRA BANK

Unused priority sector lending funds of commercial banks will be used to set up the Rs 20,000 crore corpus of the proposed MUDRA Bank. The bank will use at least 65 per cent of its funds for lending to micro enterprises run by members of scheduled castes and tribes.

DETAILS:

  • Typically, domestic commercial banks deposit their lending shortfall from priority sector to the Rural Infrastructure Development Fund of the NABARD while foreign banks are mandated to deposit an amount equal to the shortfall in priority sector lending with the Small Enterprises Development Fund of the Small Industries Development Bank of India (SIDBI).
  • The Rs 20,000 crore corpus will not come from the Budget but out of the priority sector shortfall. The Reserve Bank of India will give this money, which will be used for re-financing.
  • However, the related Rs 3,000 crore credit guarantee fund for the Bank would be set up through    budgetary allocations.
  • The finance ministry plans to rope in non-banking financial companies, small banks and Micro Finance Institutions (MFIs) for lending at the local level while it will also use state cooperative banks and regional NBFCs as an intermediate.
  • The finance ministry also plans to bring in stringent penal provisions to deal with defaults. Just 75 per cent of the loan amount would be guaranteed through the credit guarantee fund while the remaining 25 per cent would have to be guaranteed by the MFI.
  • The Bank will also levy an initial penalty of 0.5 per cent of the default amount on the lender, and the amount could increase for repeat defaulters.