NEW DELHI: The World Bank has criticized the Indian government for its failure to bring about the necessary reforms in the financial sector and formulate an exit policy when is crucial to attracting foreign investment.
However the Bank supports the economic liberalization initiated by the government and feels that India needs continued support from donor countries to overcome the balance of payment crisis.
In its report on India circulated to members of the Aid India Consortium the World Bank points out that the Indian government had promised to restructure the financial sector. Despite the fact that an official committee had recommended major changes in this sector the government had not so far acted on them.
The bank feels that liberalization without an exit policy would not enthuse foreign investors and expects the Indian government to come out with such a policy at the earliest.
The measures already initiated by the government can bring about significant changes in the Indian economy in coming years if it continues with the present policy direction The bank is sympathetic to the country’s need for continued assistance If the economic reform is to succeed the country needs foreign exchange to meet the growing demand for imports This cannot be met from export comings alone.
“If the pace of reform is maintained despite the formidable challenges ahead India could become one of the most dynamic economies in the latter half of the 1990s and beyond” says the report.
According to the bank inflation continues to be a major problem Although the government succeeded in averting a major crisis on the balance of payment front and reduced fiscal deficit 10 65% of the GDP as targeted rate of inflation remained high A quick reduction in inflation and strong export growth in the next year are critical to the short term sustainability of the adjustment program.
The Aid India Consortium meetings in Paris on June 25-26 are expected to enhance the quantum of aid by a reasonable margin Last year the consortium pledged 67 billion dollars This year it is expected to be around $85 billion This is subject to Japan and Germany hiking their contribution substantially.
The World Bank has recommended a quick disbursing of aid of $600 million this year to meet part of the estimated exceptional financing requirement of three billion dollars The Finance Minister Dr.Manmohan Singh has asked Japan to provide $500 million as quick disbursing aid This now looks unlikely On present reckoning Japan may not provide more than $250 million as quick disbursing aid However it is expected to increase its total commitment by 15-20% over the quantity pledged last year.
The Prime Minister P.V.Narasimha Rao will visit Japan accompanied by the Finance Minister Dr.Manmohan Singh An OECF team which was here last month is understood to have submitted a report favoring a higher quantity of aid to India Last year Japan pledged 106594 million yen This year it may be up by 1520%.
Article extracted from this publication >> June 26, 1992
