The Hindu Business Line : New Govt must take up fiscal deficit, reforms seriously

Both in the fiscal year 2003-04 and in the current one, the mid-point of the Tenth Five-Year Plan, economic performance and prospects were never so good as they appear today, given the strong macroeconomic fundamentals of a good agricultural year, sound industrial growth and bulging foreign exchange reserves with a low inflation to boot.

Indubitably any Government that assumes office in mid-May is on a strong wicket as far as the economy is concerned, though a spate of concerns mostly of structural nature must perforce be addressed if the pronouncements of both internal and external experts and agencies in recent days are any portent or pointer.

Even as the NDA Government headed by the Prime Minister, Mr Atal Bihari Vajpayee, launched a blitzkrieg to highlight the economic achievements of the multi-party coalition Government through "India Shining" campaign in the run-up to the General Elections 2004 with Opposition parties not found wanting in puncturing some of the tall claims through their broadsides, India watchers do not miss in all these gambit the traditional Indian paradox as it is a land of contrasts.

It is small wonder that the Asian Development Bank (ADB) in its latest Asian Development Outlook, even while heaping praise on sound economic growth registered by the country, did not refrain from cautioning that "if the new Government that takes over in May 2004 fails to come to grips with the fiscal deficit and other urgent reform issues, this will erode business confidence and undermine investment, resulting in reduced growth."

Focussing on persisting social challenges plaguing India, the Manila-based regional development Bank said India's Human Development Index (HDI) is at 0.59 being ranked 127 out of 175 countries, as against 115 rank in per capita income.

The country's maternal mortality ratio is 540 per 100,000 live births in 1999, against world average of 411, while infant mortality rate continues to be high at 67 per 1000 live births, as against 56 for world.

The Bank is also overly worried by the accentuation of regional disparities: coefficient of variation in growth rates across 23 States and Union Territories increased from 0.78 in 1994 to 1.14 in 2000.

In its global economic paper, investment bank Goldman Sachs' researcher, Ms Roopa Purushhothaman, contends that India might well realise "its potential as the sleeper success story" of the emerging economies broadly described as BRICs (Brazil, Russia, India and China). But this is predicated on India continuing to make "further steps towards improving education and infrastructure" to continue on the path of services-led growth model, which is a sharp contrast from the manufacturing-led growth model witnessed across much of Asia.

Without mincing words, the paper squarely hit the nail on the head by stating "India lags China and Russia in levels of openness, basic education and physical infrastructure, leading us to caution that India has to work to do to build the foundation for realising its long-term potential."

Bureaucratic barriers and babudom still hold sway to the chagrin of entrepreneurs and market forces from operating unfettered and with a sense of responsibility. Citing work done by the World Bank to show that it takes 88 days to start a business in the country, twice the regional average, the paper also noted that while the number of procedures required to start a business is higher than in other regional economies, it also takes almost twice as long as to close a business in the country than the regional average of 5.4 years.

"India has more regulation than others in the region regarding conditions of employment and labour market flexibility," the paper said.

Even as India's tilt towards services makes education and human capital stock critical, it is a pity that at the basic levels of education, India receives low marks relative to the rest of the BRICs, focussing the tasks ahead cut out to the new Government. Hence the paper forcibly argues that if India could match China in the quality of its infrastructure and education, growth rates over the next five years could jump from an average of 6.1 to 8.1 per cent, hitting the Government's target of 8 per cent growth.

India's Executive Director in World Bank, Mr C.M. Vasudev, also rammed this home here when he said at a workshop that the Bank intends to make available higher funding for education and infrastructure.

Unless the new Government draws out a roadmap spelling out its immediate priority for a fiscal consolidation course to prune wasteful expenditure and set apart higher outlays on education and infrastructure, besides bureaucratic reforms to reduce the high cost of the economy, India's quest to be in the league of developed countries by 2020 might turn out to be a chimera and a parody for its people, experts say.