The Hindu Business Line : `Public services must be provided cost-effectively'

IN order to make higher economic growth sustainable in India, some more adjustments might be made on the fiscal front through improving tax collections and providing public services in a cost-effective way as part of expenditure management, according to the World Bank Chief Economist, Mr Francois Bourguignon, said today.

Talking to Business Line here after wrapping up his maiden visit to India as the Chief Economist and Senior Vice-President, Development Economics of the World Bank, Mr Bourguignon said that though consistent discussion on the value-added tax (VAT) had taken place, it should be put into practice as "it is a much easier tax collection." Alongside, he said, efforts could be made to get rid of public debt which means provisions should be made on the expenditure side. "The way this is done is not by downsizing public services as they are but making them more cost-effective. That means increasing the productivity and not cutting down the services rendered to the public," he added.

Mr Bourguignon said, "It is difficult to believe that it is sustainable to accumulate public debt at the rate which it is taking place here. It must be curbed and having said this one cannot swing to other extreme to state that should be no more budget deficit. Given the growth prospects of the economy, there is sustainable primary deficit. Probably the only point as of today is that India is slightly above the sustainable primary deficit with a growth rate of 6 to 7 per cent GDP per annum. If growth prospects were to increase then the rate of fiscal deficit must slow down."

Asked about any problem sector plaguing the Indian economy, he said that more investments must be made in infrastructure, energy and transport sector where "it is necessary to make sure that investments are taking place." He said that domestic market in India is very important and as development is proceeding, the market will become bigger for products and output to go up.

On India's scorecard in social sector, an area the Bank has of late taken increasing interest, the Chief Economist said that the Bank is collaborating with the Union Government and also State Governments. He said that it is necessary to improve the investment climate in order to enhance growth potentials of India and simultaneously ensure to invest more directly on social sector development so as to enable poverty reduction that might be obtained in higher economic growth.

He said that even as poverty reduction is definitely taking place in India over the last five years, though no discussion above the level of such reduction is taking place. "What we like to make sure is that the rate at which poverty is going down in India is maximised. But in order to make sure progress on this front it is necessary to get data," he added.

Asked about India's export sector achievement both in merchandise goods and services, Mr Bourguignon said, "India is doing very well - increase in exports has been quite substantial and is driving the economic growth over the last decade. There is no doubt that India increased its competitiveness and can do better and a lot of opportunity exist in the States." He said that the Bank has been expressing itself against emerging non-tariff barriers to exports of developing countries and in the trade negotiations this should be taken up.

When his attention was drawn to the backlash against India's services exports particularly the recent US Senate ban on business process outsourcing to India by government contracts, Mr Bourguignon said that it "is exactly the same process as people in developed countries are complaining because manufacturing sector has been drawing away local jobs from countries of Asia, Latin America, West Asia, India and China. This is an issue to be taken up by the WTO, he added. He, however, hastened to add, "I don't see any specific problem in outsourcing operation. There is a competitive advantage for countries like India with its English-knowing and technical personnel. I tend to consider this type of production activity is similar to manufacturing industry."