W-B cautiously optimistic about India's future

Friday, 23 May 2003, 07:00 Hrs
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BANGALORE: The World Bank's chief economist, Nicholas Stern, Thursday said he was "cautiously optimistic" about India's future because the most difficult reform issues were beginning to be explored.

"I am cautious because in pushing forward with reform it is always necessary to overcome short-sightedness and the special pleading of many vested interests who gain from existing structures," he told the World Bank's annual bank conference on development economics (ABCDE) here.

Reforms had to necessarily move ahead strongly for development to accelerate and, for this to happen, a strong leadership and vision were prerequisites, he said, while delivering the keynote address on "Opportunities for India in a Changing World".

"Some of the most difficult reform issues are only beginning to be explored. There is still a long way to go," he said. The opportunities for India in the changing world were enormous.

"India enjoys enormous advantages in its institutions of governance, democracy and a professional civil service. It is encouraging that the commitment to reform has continued through different governments," he said.

Stern also told the rich countries to deliver on their pledges to open markets wider to exports from developing countries "and to increase aid to developing countries that are genuinely pursuing reforms.

"Many developing countries are proceeding with reform, working to improve their investment climates and invest in and empower poor people.

"India is well placed to take a position of leadership in shaping the discussion over international aid flows and their effectiveness," particularly when the rich countries were not doing enough to support the partnership for development, he said.

He said market access in agriculture and textiles was important for developing countries because of the comparative advantage, and "unless industrialised nations at the G-8 conclave actively try to break the logjam, we will not see any serious progress at Cancun".

Stern said fostering innovation would be the key to Indian efforts to increase market penetration internationally and expand the share of the manufacturing sector in the economy.

"India's manufacturing sector relative to gross domestic product (GDP) is less than half the size of China's and most South-East Asian countries, and India's penetration of world markets in industrial products stagnated during the 90s," he said.

Recent World Bank studies of the investment climate show that starting a business in India requires 10 permits compared to six in China and requires an average of 90 days in India compared to 30 in China.

"All these factors serve as a tax on entrepreneurship, impeding innovation and raising the cost of bringing ideas to the market," Stern said.

But the problem was not so much on macro economic issues. India's problem lay in controlling its huge fiscal deficit.

"I don't see macroeconomic stability problems, especially in the immediate future," he said. "But it (fiscal health) is a problem."

The combined fiscal deficit of the federal and state governments was a matter of concern. The figure is close to 10 percent of gross domestic product (GDP) now, one of the highest in the world.

India needed to widen the tax base to cover agriculture and services, improve tax administration and also boost economically efficient infrastructure spending to sustain growth because state spending was increasingly unproductive, he said.
Source: IANS
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