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World bank economist sees `strong' commitment to reforms

G. Srinivasan

NEW DELHI, Nov. 26

INDIA'S commitment to reforms remains strong despite the fact that this had been a tough process with probable setbacks on the way, the Chief Economist and Senior Vice-President of the World Bank, Dr Nicholas Stern, has said.

In an exclusive interview to Business Line on the sidelines of a recent three-day India States' Reform Forum here, Dr Stern was ``optimistic'' of Indian economic reforms proceeding apace and resulting in high economic growth in the coming years to make a durable dent on poverty. He said the ``myth that India is suffering from reform fatigue or a reform slowdown'' has been exploded with reforms taking off in State after State.

Stating that the next 10 years would be ``exciting'' here, Dr Stern remarked that ``if reforms are deepened and if poor people participate, there would be years of fast growth and rapid poverty reduction'' in India.

Reforms in several States were beginning to address macro-economic imbalances and as a response, the Bank group has re-oriented its strategy to focus assistance, mainly on those States. In fiscal 1998, the Bank backed innovative efforts in Andhra Pradesh to restructure public expenditures through fiscal reforms, social spending targets and public enterprise divestiture. As a result, public spending on primary education and health is already climbing, he noted.

In fiscal 2000, Uttar Pradesh became the second State to receive State-level Bank assistance; the Bank is extending a multi-sectoral package that supports its economic reform programme and helps to put its finances on a sustainable path. Dr Stern said op erations underpinning fiscal, public sector and power sector reforms have provided urgently needed funds, especially for the improvement of social services for poor people. Even as Andhra Pradesh and Uttar Pradesh together account for over a fourth of In dia's poor, similar support to other reforming States in India is under preparation.

Dr Stern specifically mentioned fiscal, governance and power reforms where the World Bank group pledges continuing support and strengthening of the partnership between the Bank and each of the reforming States such as Andhra Pradesh, Karnataka and Uttar Pradesh. Though sectoral reforms such as power could be difficult, a clear road-map for fiscal reforms seems to be emerging among both the Centre and the States.

Even as some sort of medium-term fiscal framework needs to be crafted by the States, much work remains to be done to institutionalise these frameworks which must be ``integrated'' with the budgetary process. If these two things supervene -- provision of legislative backing and budgetary institutionalisation -- Dr Stern is optimistic that ownership would increase and fiscal frameworks which many States were devising would become much stronger and lasting sources of fiscal discipline.

He suggested that the Union Government could usefully provide incentives for the development of a medium-term fiscal framework in the context of Plan discussions with States, without directly mentioning the dreaded word ``conditionalities'' which smack o f policy-based lending.

Pic.: Dr Nicholas Stern, Chief Economist and Senior Vice-President, World Bank.

Picture by Ramesh Sharma