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Acting IMF chief upbeat about India's growth prospects

C K Arora

For the first time, the International Monetary Fund has forecast for India a "significantly higher" annual growth rate than the current 6.75 per cent in the light of its untapped growth potential and the momentum of its "cautious" economic reformation.

Acting managing director Stanley Fischer, addressing the press on the eve of the annual spring meeting of the Fund-World Bank, said he was unsure India would achieve a sustained growth rate of 10 per cent or more -- as predicted by United States Treasury Secretary Larry Summers -- but said it was going to be much higher than the existing rate.

Fischer recalled how the country had come out of its 3 per cent "Hindu growth rate" since the commencement of the reform process in 1991. From 3 per cent, it became 4 per cent, then 5 and now it's over 6 per cent a year.

What showed the strength of India's economy, he pointed out, was the fact that it had managed "to maintain the growth momentum and [had] sustained [its] growth programme" even through a period of political instability marked by "changing governments and short-lived governments".

But he said a huge amount of reform still needs to be carried out. As the country's economy opens up through a cautious approach to capital account liberalisation of trade and begins to deal with its financial system and structural reforms, the growth rate will go up, he predicted.

Meanwhile, the IMF's 'World Economic Outlook' has recommended a "significant policy action" for India to help sustain its current growth rate and make a dent in poverty, which remains high with more than a third of the country's population living below the official poverty line.

It spells out the measures necessary to maintain the growth rate achieved in the wake of a pickup in industrial production that began in 1999. It helped offset the slowdown of agricultural output in the middle of that year and growth is projected to continue at over 6 per cent in 2000.

The document says faster growth rates would require durable fiscal consolidation to raise national savings and crowd in private investment spending, further liberalisation of foreign trade and investment flows, and additional reforms to labour markets and in the agricultural, industrial and financial sectors to promote greater efficiency and export competitiveness.

These reforms need to include the removal of domestic pricing distortions, improvements to bankruptcy procedures and an easing of restrictions on firm and farm size and regulations that make it difficult to shed labour. Fiscal priorities also need to be redirected towards investment in human and physical capital, it adds.

UNI

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