YOKOHAMA (JAPAN): The Asian Development Bank (ADB) has called for an integrated and deregulated market in India to help burnish the South Asian nation’s allure as adestination for foreign direct investment.
“India has a strong potential, but its markets should be more integrated. The powers of the state governments must be balanced with the central government’s power. An integrated Indian market, which is more deregulated and more welcoming to foreign direct investment, should be linked to other parts of Asia and the world,” ADB’s President Takehiko Nakao said on Thursday at the ongoing annual meeting of the bank at Yokohama, near Tokyo.
India is seeking to integrate its domestic markets by implementing the Goods and Services Tax (GST), which is billed as the biggest reforms in the country’s indirect taxation structure since Independence.
The GST, which seeks to subsume diverse state levies into one band of taxation, will likely be implemented from July 1.
Lauding Indian Prime Minister Narendra Modi for his bold reforms agenda, the ADB president said: “The integration of the tax system is being implemented. There was an impact from demonetisation, but that is now stable.”
The ADB has projected India’s economy to expand 7.4% in 2017-18, com-pared with 7.1% in 2016-17, driven by a revival in consumption and higher public investments.
“India, as compared to China, has not reached its full potential yet,” Nakao said. He said the latest trading arrangements, such as the Trans Pacific Partnership and the Regional Comprehensive Economic Partnership, besides the bilateral agreements will help boost trade.
Commenting on the rising trend of protectionism, Nakao said the bank is unlikely to revise downward its growth projection for India even as “protectionism stares hard at Asia”.
“I don’t think protectionism is affecting our growth projections, although we must make efforts to maintain the momentum of further opening up of trade,” he said.
INFRASTRUCTURE LENDING: ADB AND AIIB
The ADB and the China-based Asian Infrastructure Investment Bank (AIIB) could be allies – not rivals – in the financing of infrastructure projects, Nakao said. Pegging the infrastructure needs of developing countries at $1.73 trillion, Nakao said: “We are not competing for members’ numbers, but we can cooperate with the AIIB. The financing need is so large that we don’t need to regard them as a rival.”
The AIIB was formed in 2015 and has 52 members, while the Manila-based ADB has 50 years of lending experience and has 67 members. About 70% of ADB’s lending is in infrastructure.
“I had nine rounds of discussions with (AIIB) President Jin (Liqun) in the last two years on co-financing projects. We agreed to three projects, two last year, one this year and we also discussed how we can use local currency for co-financing. There are many areas in common where we can cooperate,” he said.
The multilateral lending institution, he said, will not need to change its business model because of the social-sector needs for funding. “We will continue to support the social sector, besides infrastructure”