The Hindu Business Line : World Bank cautions TN on reversal of reforms

THE World Bank has cautioned the Government of Tamil Nadu that its recent policy choices of reversing critical reforms would impede expenditure-restructuring efforts and imperil the gains made thus far.

In a recent report on economic growth and poverty alleviation in Tamil Nadu, with notes on select policy issues prepared by the Bank's South Asia Region office here, the Bank said the reversal of critical policy reforms poses "a threat to fiscal consolidation besides affecting the credibility of the medium-term fiscal policy and fiscal and budgetary discipline".

Stating that the State Government seems to have painted itself into a corner in the power front, the Bank said that if there are no further tariff increases before the next State election the power sector losses in 2006-07 could exceed by as much as Rs 2,000 crore or more than one per cent of Gross State Domestic Product. In such a scenario, the consolidated deficit would be back at or above pre-reform levels and productive spending crowded out by power subsidies.

"Tamil Nadu has no choice but to return to the path of fiscal consolidation", the Bank said adding that otherwise, the success of the reform programme initiated by the State Government looks uncertain with every possibility of the State reverting to the fiscal distress highlighted in the State Government's White Paper published in 2001.

Pointing out that traditional sources of agricultural growth in the State confront major constraints, the Bank said seasonal water shortages, increasing land degradation, continually shrinking farm sizes and rising costs of agricultural labour pose immense challenges that need to be met if future growth in agriculture is to be realised.

Given the extant constraints, diversification into less water-intensive higher-value products, including fruits, vegetables, spices and livestock products are of the most promising avenues for augmenting agricultural growth. Here, the rapidly increasing incomes and changing food demand patterns provide robust fillip for diversification, even as Tamil Nadu's agro-climatic conditions are well suited to diversified agriculture.

The Bank said increased agricultural diversification and private investments in processing for many of the higher valued agricultural commodities are likely to generate new rural non-farm employment opportunities and contribute to higher rural incomes. Contract farming and other private sector initiatives should be encouraged, though the impact of such business arrangements on farmer incomes should be evaluated, as well, the Bank said.Unveiling a four-pronged strategy to overcome the obstacles in the farm sector and to accelerate growth in agricultural production and the rate of rural poverty alleviation, the Bank said these include improving the efficiency of water use, increasing the effectiveness of public expenditures and agricultural extension, spurring the development of agricultural markets and maximising the real income growth of the rural poor.

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