World Bank warns India against rising deficit

The World Bank on Wednesday warned that India’s high fiscal deficit, coupled with political risks and regional instability, could slow ...

The World Bank on Wednesday warned that India’s high fiscal deficit, coupled with political risks and regional instability, could slow down reforms, undermining the growth prospects.

“The persistent fiscal deficits continue to be a risk in a number of South Asian economies, particularly in India, as they can undermine the fiscal sustainability, contribute to a growing debt-GDP ratio, and lead to higher interest rates,” the World Bank said in its Global Economic Prospects.

‘For unbundling of Singapore issues’

NEW DELHI: Like the US, the World Bank too has made a case for unbundling of Singapore issues stating that while a multilateral framework on trade facilitation is desirable, there is no economic evidence that an investment agreement would, by itself, promote new foreign investment or a competition policy, as currently framed in the negotiations, benefit developing countries. The World Bank report said that in the area of trade facilitation, any agreement, if it is to be effective, should recognise limitations in domestic capacity for implementation. An agreement would be most effective if it included a serious commitment by developed countries to finance new trade-facilitation systems. It suggested that development assistance delivered under the commitment could be provided by the World Customs Organisation, the multilateral development banks and bilateral donors. (ENS)

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This could lead to divergence of public outlays from investments to interest payments and limit the scope of fiscal and monetary policies, the bank said. Noting that India’s general fiscal deficit (both the Centre’s and the States’) was little changed from 11 per cent of GDP, despite increased revenue collection, the bank suggested fiscal consolidation, saying it would not only mitigate such vulnerabilities, but also provide scope of action in macroeconomic policies to pursue sustained higher growth. “Political risks and uncertainties also remain a concern because of both internal and external factors. Heightened domestic and regional instability could undermine the growth prospects and slow the pace of economic reforms,” the Bank said.

The Bank said growth was expected to accelerate throughout the South Asian region (including India) up to an average of 5.4 per cent, assuming a return to trend agriculture production, a recovery in external demand and continued improvement in political stability and regional security.

“Real GDP growth in South Asia is projected at 5.4 per cent in 2003,” the Bank said, adding that excluding India, it is expected at 4.8 per cent. Domestic demand, especially private consumption and fixed investment, is expected to accelerate, spurred by recovery in agricultural incomes.

However, it noted that severe weather conditions and associated poor harvests remain a “significant” risk to growth outcomes. It said the growth is likely to be supported by continued strong expansion in the services sector, especially in IT. (PTI)