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IMF lays out economic growth plan for next govt

R C Murthy in Washington

The Indian economy is projected to slow down next year, contrary to optimistic forecasts being by economic pundits and politicians back in India.

The World Economic Outlook of the International Monetary Fund, released on the eve of IMF and World Bank annual meetings, says India will grow at 5.5 per cent in 2000 AD against 5.7 per cent in calendar 1999 and 5.8 per cent in the previous year.

At best, they can be broad indicators viewed globally and the views do not seem to reflect ground realities.

The Central Statistical Organisation has placed India's growth at 6-plus per cent in 1998-99. This year, while industrial production can be higher because of recovery underway, the trend in agricultural production is still a big question mark.

There were deficient monsoon rains till August-end in the western India and Rajasthan but some improvement was seen in the first half of September. On the other hand, there was excess rainfall in Bihar and West Bengal and its effects are yet to be assessed.

The priority of the new government to be formed, says the World Economic Outlook, will be to establish an ambitious and well specified medium-term fiscal adjustment programmes, coupled with commitments to build on the progress already evident in a number of areas of structural reform.

In additon to public sector reforms needed for fiscal consolidation, prospects for meaningful growth in per capita income would be greatly improved through faster progress with the privatisation of state-owned banks, combined with measures to increase labour market flexibility, deregulate product markets and liberalise trade regime.

The IMF's WEO can be of value for planning India's strategy for exports, which slowed considerably last year. A slowdown in the US economic is forecast while Japan and Euro area are expected to experience good growth.

A significant decline to 2.6 per cent in 2000 AD from 3.7 per cent in 1999 is projected for the US with ramifications to exporting countries. Trade frictions may intensify.

If growth were to weaken significantly in the US without offsets in Japan and Europe, there would also be reason for concern about the sustainability of the recoveries underway in the Asian economies recently in crisis, and much of Latin America would be particularly be vulnerable under such a scenario.

The IMF document takes note of estimates of recent growth in India which have been revised up somewhat, partly reflecting a strong rebound in agriculture and short-term prospects have improved. The increase in agricultural incomes is providing a boost to domestic demand and with exports also recovering, industrial production has begun to revive.

The IMF notes that inflationary pressures have declined with the easing of supply of problems in a number of key agricultural commodities. However, to establish the conditions for strong sustainable growth over the medium-term, policy action is needed on a number of fronts, it adds.

The report says a key concern is the large public sector deficit, which is expected to rise to almost 10 per cent of gross domestic product in 1999/2000, resulting in a high level of public sector debt and is adversely affecting investment.

Wolfensohn may get second term as World Bank president

Meanwhile, World Bank President James Wolfensohn appreciated India for its economic performance. "India has done pretty well. It is an economy that has growth reasonably well over the last decade," he emphasised.

But he warned against India encountering problems in achieving poverty reduction. "I think now on the issue of poverty, it appears that on the trend of poverty reduction, you are having more problems. And you have a serious potential problem with the AIDS epidemic."

But he hastened to add that the new government to be in saddle next month would look into these aspects and the World Bank hoped to work closely in tackling them. "I have a lot of confidence in the government. I think we should wait and see what happens as a result of the elections. But it has been my experience in the past that the Indian government establishes its own programmes. It consults with us, but I think (it) has been quite successful."

Wolfensohn kicked off this year's annual meetings of the IMF and World Bank on a relaxed note. In contrast, he was tense last year, not certain of garnering enough support from developed countries for his policy initiatives.

Wolfensohn is soon to end his five-year term and speculation is rife on a second term for him. The World Bank has formulated what it calls, comprehensive development framework, a variant of what India had introduced two decades ago: integrated development projects.

Dubbed as a means of achieving greater effectiveness in reducing poverty, CDF is based on four corner stones: Ownership by the country: The country, not assistance agencies, determines the goals and priorities of the country's development programmes. Partnership with government, civil society, assistance agencies, and the private sector in defining common development objectives and implementing prdogrammes. A long-term vision of needs and solutions, built on national consultations, which can engender sustained national support. Structural and social concerns treated equally and contemporaneously with macroeconomic and financial concerns.

Wolfensohn wants to leave a lasting imprint on developmental economics a la Robert McNamara. He seems to be moving away from the "trickle-down" theory and experiment growth with equity.

If he gets a second five-yuear term, he would give a push to his new ideas. India should enthusiastically cooperate with the World Bank and the IMF, a few observers here remarked.

Additional inputs: C K Arora/UNI

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