The Hindu Business Line : Global Monitoring Report

India may have been placed among the top 10 reformers 2003 under five activity heads — starting a business, hiring and firing, enforcing contracts, getting credit and closing a business. Yet, the fact remains that Indian reform has not been able to make a mark in various spheres which could effect a sea-change in the Indian business scenario if tackled appropriately.

IF ONE goes by the Global Monitoring Report brought out by the World Bank and the IMF, there is something to cheer about as regards the state of the Indian economy.

This may sound a bit surprising because, already, a lot of good things are being said about the economy and one may argue that this is no time to rely on the Bank-Fund's imprimatur on the state of the economy.

This is of course acceptable, but at the same time it must be emphasised that a good word about the economy from the Bank-Fund increases the respectability and acceptability of the claims that are being made on behalf of the Indian economy which, briefly, India and its supporters should make use of on the right occasions.

Now what does the GMR 2005 have to say about the Indian economy that should lift our spirits?

The report says that since 1990, the South Asian region achieved an annual GDP growth of nearly 5.5 per cent, helping to reduce poverty significantly. India has been held up as an example for reducing its poverty rate by 7-10 percentage points since 1990.

This apart, three places in South Asia have been singled out as having "specially good MDG (Millennium Development Goal) indicators for their income levels" — Sri Lanka, the State of Kerala, and Bangladesh, the first two's experience reflecting, among other things, "the priority that successive governments have long given to investing in human development".

That Bangladesh also features in this list should ordinarily be a bit surprising considering its "low income, high poverty...high population density, contentious politics, and vulnerability to natural disasters".

But the report says that Bangladesh's success "has owed much to an effective scaling up of basic services based largely on partnerships between the public sector and NGOs and a resulting high degree of community involvement, local innovation and experimentation".

The report makes it clear that the income poverty MDG is within reach as continued high economic growth "will raise incomes, widen economic opportunities and create jobs for poor people".

Even so, the report acknowledges that despite substantial public spending, "health, education, water and sanitation services continue to fail poor people in some countries and states".

This is because of the "fragile accountability between users, providers, politicians and policymakers caused by ineffective public institutions, poor focus on outcomes and incentives, political clientilism and patronage, and difficulty of monitoring and supervision".

However, there is hope. As the report says, "with democracy firmly rooted across the region, the devolution of political power to lower levels of government is proceeding", with the result that even if the rate of progress is not uniform, "decentralising resources and responsibilities to local providers and communities holds (out) prospect for better service delivery".

The report concludes that "universal primary education, gender equality, child mortality, and major disease MDGs appear within reach of most South Asian countries, with only Afghanistan, Pakistan, and poorer states in India remaining off track unless progress quickens substantially".

On the whole, this seems to be good news for the well-wishers of India in that its economy and society are perceived to be doing well in the race to meet the UN's Millennium Development Goals, the objective of which is to improve the living conditions and standards of the majority of mankind within a stipulated time period. But one must remember that this is not the end of the story and that there are a number of other reports and surveys (on the current status of the country's economic development) which do not portray a comfortable enough picture.

Take, for example, the Doing Business 2005 report prepared by the World Bank, the International Finance Corporation and the Oxford University Press, which clearly indicates that, while India has made some progress in a couple of areas associated with the "doing business" activity, the road ahead is long and difficult.

More importantly, the reform effort will have to be sustained in the decades ahead if the economy is to really make an impact on the world economy, which alone can justify the description of the economy as an "emerging tiger".

Admittedly, the study accords India a place among the top 10 reformers in 2003 under five activity heads — starting a business, hiring and firing, enforcing contracts, getting credit and closing a business.

While this may look good in view of the fact that as many as 148 countries figure in the study (the second in a series begun last year), the fact remains that Indian reform has not been able to make a mark in the spheres of starting a business and hiring and firing, areas which could effect a sea-change in the Indian business scenario if tackled appropriately by the authorities concerned.

On the other hand, progress has been achieved in the spheres of getting credit and closing a business, the latter still being a bit problematic in situations where the labour force exceeds 20 or 25.

Among other things, the study reported that India headed the list of countries where firms had to spend the most amount of time in dealing with Government regulations, the Indian score being 61 per cent of the respondent firms (which spent more than 10 per cent of senior management time on the chore) followed by Ecuador (56 per cent), Kenya (49 per cent) and Cambodia (37 per cent).

The point has of course been made that the ideal is not have zero regulation but to have regulation which is not costly or burdensome in other ways.

To quote: "If Australia needs only two procedures to start a business, why have 15 in Bolivia and 19 in Chad? If it takes 15 procedures to enforce a contract in Denmark, why have 53 in Laos PDR? If it takes one procedure to register property in Norway, why have 16 procedures in Algeria?

And if laws require all seven types of disclosure to protect equity investors in Canada, why do those in Cambodia and Honduras provide none?"

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