NEW DELHI: The World Bank is of the view that political and Social pressures as well as some technical problems have constrained the peace of economic reforms in India and that the third year of adjustment which has just begun could be politically more difficult.
However, it also feels that unless the reforms pertaining to some crucial areas like the public sector, taxation and the financial sector are intensified and speeded up, the measures already taken may prove economically unsustainable and could also. Strengthen resistance to the reforms. These views have been expressed in a country economic memorandum prepared by the Bank.
“As India moves into a third year of adjustment, the initiatives required to make the reforms sustainable are likely to prove technically and politically more challenging,” the memorandum cautions after noting that such pressures have already had an impact on the pace of reforms. Outlining the measures taken by the Government in the direction of restructuring the public sector, the memorandum remarks that the progress in this area “has been modest” and the reforms need to be “intensified.” Pointing out that the ongoing adjustments in trade and industrial policies, as well as the reduction in budgetary support to the PSUs “are likely to increase the financial difficulties” they face, it Says unless there is a “comprehensive plan to allow for an orderly adjustment,” this could place a stress On the rest of the economy. “Under such circumstances, social and political resistance could Brow rapidly, resulting in possible stagnation or reversal of the reform process,” it warns. Among the measures it recommends are: Outright sales of some public sector units and giving the Board for Industrial and Financial Reconstruction the power of liquidation: widening of the tax base; phasing out of fertilizer subsidies and reduction in food subsidies: better “cost recovery” for public utility services; a faster pace of reduction in the statutory liquidity ratio for banks; reduction and better targeting of priority sector lending.
The memorandum notes: “Substantial further progress was made in stabilizing and reforming the Indian economy in 199293 despite a major financial scandal and civil disturbances that strained the political consensus for reform and adversely affected economic activity.” It, however, observes that the growth in exports has been “much slower than expected.”” “However, even allowing for special factors, the rate of export growth achieved in 199293 fails shorn of what is needed to strengthen India’s balance of payments position.”
Reforms in taxation, have been both by the constrained complexities of revenue sharing a managements between the Center and the States and by “concerns about broadening the tax base.” It says actions to facilitate industrial restructuring and “deal expeditiously” with PSUs and directed credit “have been delayed as well by political and social considerations,” On the issue of widening the tax net, the memorandum notes that unless this is done soon, the tariff reductions announced in the last two budgets will become difficult to sustain as they eat into the Government’s revenue and force: further reductions in capital expenditure.
Article extracted from this publication >> August 6, 1993
