The Hindu Business Line : `Full float must be done in phases'

INDIA does not need to rush into capital account convertibility. While convertibility may be a desirable goal, there is no reason why it cannot be done gradually, say, over a 10-year period, says Dr Lant Pritchett, Lead Economist, World Bank.

Dr Pritchett said this in response to a question, at the National Symposium on `Growth and competitiveness in a global environment,' organised here by the Loyola Economics Association for Development, Loyola College, Chennai.

He said that a growth in the financial sector without corresponding growth in the real sector may not be good, as had been seen in the cases of some South-East Asian countries in the 1990s.

Dr Pritchett said that super high growth rates need not necessarily be good over the long run. Rather, a measured rate of growth may be more sustainable.

He observed that countries such as Brazil and Philippines had once been growing rapidly, but soon fell back to low rates of growth.

He said that he was "bullish on the Indian elephant" because India had been avoiding the common causes of "stall" - avoiding a too fast growth, not susceptible to external shocks and low political risks. China, for example, has political risks because if the country goes from one party rule to some other system, nobody knows what will happen.

However, Dr Pritchett said, there were also pitfalls. There needs to be fiscal space for infrastructure development. Either the infrastructure users will have to be made to pay or general tax rates will have to go up.

Secondly, growth is happening only in pockets and many regions are lagging, education system is highly stratified, with large chunks of population having no access to education at all.

Pointing out that India had the third least inequality in income distribution among developing countries, Dr Pritchett said that while growth might increase the inequality, the poor are relatively much better off. For example, China is far more "inequal" than India, but the poor there are much better off.

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