'Reforms in India necessary to create competitive economy'

The new set of economic reforms announced by India are necessary to create a more competitive economy, Institute of International Finance has said.

It welcomed the United Progressive Alliance government's decision on opening up more sectors to foreign direct investment.

India on Thursday unleashed a second wave of reforms deciding to open the pension sector to foreign investment and raising the foreign direct investment cap in insurance to 49 per cent, undeterred by opposition to its decisions on FDI in retail and threats to block these legislations.

It cleared a raft of big-ticket legislative proposals, including the new Companies Bill, amendments to Competition Act and Forward Contracts (Regulation) Act.

"I welcome the moves that have been announced in India recently. I know there has been some substantial resistance as a result of this, but this was necessary to create a more competitive Indian economy," IIF managing director Charles Dallara told reporters at a news conference.

"I think these are timely and necessary reforms for the Indian economy," he added.

Dallara said, however, that although India has a lot of economic advantages, it needs to address the issues of inefficiencies and protectionism.

Created by 38 banks of leading industrialised countries in 1983 in response to the international debt crisis of the early 1980s, IIF is the global association of financial institutions.

Earlier in a letter to the International Monetary Fund, Dallara said that the 'global economy is at a crossroads' and

calls for global policy coordination to fend off 'substantial' risks.

Commitment to a 'substantive policy coordination process' has recently weakened, as individual countries have turned inward and focused on domestic priorities and objectives, it said.

The IIF called for a coherent group within the G20, of those critical countries where major action is needed, to take the lead in forming a broad consensus on adopting policy adjustments that would facilitate the global economic recovery, which currently is stalling.

Dallara said, "The international financial community has a collective interest in reducing the uncertainty that currently surrounds the global economic outlook.

"If we want to lay the basis for a durable global economic expansion, then we need to see more concerted action by the world's policymakers."

The letter to IMF points out that the recovery in mature economies since 2009 has been "anaemic and fragile", with unemployment rates in the US and the Euro Area, for example, remaining relatively high, at 8.1 per cent and 11.3 per cent respectively.

In Spain and Greece, unemployment rates have risen to about 25 per cent, with a worrying negative impact on human capital.

Dallara said the world economy appears to be stuck at the crossroads, being pushed in one direction by easier monetary policy, and pulled in another by fiscal austerity.

"We call on the global policymaking leadership to act cohesively and give a clear direction.

"The international private financial community stands ready to do its part and cooperate, with its usual responsibility, with the official sector," he added.