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World Bank bullish over India's growth

The World Bank is upbeat about India's economic prospects in the near future, saying that the country is expected to ''sustain fairly rapid growth while grappling with domestic reform issues.''

Strong growth in industrial countries, an ''exceptional recovery'' in world trade, and higher commodity prices will help boost average growth rates for developing countries to 4.6 per cent this year and slightly higher in 2001, according to the World Bank's Global Development Finance' report, released in Washington on Tuesday.

"Several economies in East Asia, European Union, Brazil and Mexico exhibit two or more of attributes," the report said.

India and China, with about half the developing world's population, are also expected to ''sustain fairly rapid growth,'' it said.

South Asia continued to enjoy rapid progress in 1999, reaching 5.8 per cent growth levels. An improved cyclical and policy environment in India after the election of a new government was the main reason, the report says.

Despite recovery from floods in Bangladesh and very good agricultural production in Pakistan, growth in these and other large South Asian countries was constrained by political difficulties and halting policy performance, it said.

The World Bank document says that policy reforms in the region will need to accelerate in a more stable environment if South Asia is to reap the gains from the current recovery in global conditions and sustain a rate of growth necessary to achieve significant progress in poverty reduction.

Across the region, rising domestic demand contributed the most to growth. Fiscal deficits remained high, but inflation was subdued because of good agricultural harvests and stable exchange rates, the report said.

The foreign sector had a positive, but smaller, impact on South Asian economies in 1999, with export and import volumes increasing at broadly similar rates -- about 7 and 5.5 per cent, respectively, it said.

India and Pakistan showed evidence of accelerating exports in the second half of 1999, consistent with the overall improvement in world trade volumes and steady or depreciating real effective exchange rates. Nonetheless, the positive impact of trade on growth was relatively small, the document said.

Despite past progress with trade reforms, export barriers continue to impede greater efficiency and to hold back prospects for export-led growth in South Asia, it said.

Moreover, terms of trade deteriorated due to sharply higher oil export prices and lower agricultural export prices, with a negative impact, the World Bank document said.

The regional current account deficits remained small, with some variation, and were largely manageable. India's deficit narrowed to lower levels as a result of faster growth in exports over imports -- despite sharply higher oil prices -- and was easily financed. Foreign reserves rose substantially.

In Pakistan, on the other hand, a fall in official capital inflows as well as remittances and a widening trade gap meant continuing pressure in external financing. This occurred despite debt rescheduling obtained from the Paris Club and private creditors.

The most important influence on South Asian growth in 1999 was India's more than 6 per cent advance in gross domestic product, or GDP, supported by an increase of about 10 per cent in domestic fixed capital formation, it said.

India's domestic investment and consumption boom is attributable to several factors, including investors confidence buoyed by the election of a new government with a clearer majority and lowering of interest rates, the report said.

The World Bank report said that South Asian export markets are beginning to grow rapidly and commodity prices are recovering, while oil import prices should moderate somewhat in the year ahead.

The countries of the region are less vulnerable to development in external conditions than other emerging markets due to their lower reliance on trade, it said.

According to the report, output growth in South Asia is expected to rise to about 6 per cent in 2000, moderating thereafter toward the 1989-98 average of 5.5 per cent.

However, the World Bank forecast also implicitly assumed that deeper reforms in the region will be harder to implement.

The region's countries will not be able to take full advantage of the potential for about 7-8 per cent annual growth that might be realised by using to advantage the rapid recovery and growth in world trade, it said.

UNI

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