World Bank warns India on fiscal deficit, slow reforms

The World Bank has warned India that its growth prospects are weakened by high fiscal deficits and slow reforms, and the country needs to accelerate poverty reduction efforts, especially in Uttar Pradesh, Bihar and Madhya Pradesh, to meet the Millennium Development Goals.

"India's growth prospects are weakened by excessive high fiscal deficits, resulting in one of the highest levels of public debt in its history, a slowdown in the implementation of structural reforms and a financial system that is successful at mobilising savings, but not in efficient allocation," the World Bank said in its mid-term progress report for 2001-04.

Depicting a 'mixed picture' on reforms, it said external liberalisation has continued but the pace of domestic liberalisation has been inconsistent, privatisation has moved faster, there have been banking reforms but the system remains inefficient.

"However, incentives for states and cities to undertake reforms have been strengthened," it added.

Despite India's substantial progress on poverty in 1990s, the bank asked the country to accelerate its efforts.

"Progress on health indicators are slower," it added.

The report pointed out that poverty and illiteracy have become concentrated in poorer states -- Uttar Pradesh, Bihar and Madhya Pradesh -- accounting 50 per cent of India's poor.

"The country will not be able to achieve the millennium development goals without continued economic growth to widen opportunities and determined efforts to deliver more effective basic services, especially in these poorer states," it said.

The millennium development goals include poverty eradication, universal primary education, promoting gender equality and empowerment of women, reduction of child mortality, improvement in maternal health, combating HIV/AIDs, malaria and other diseases.

Referring to the country assistance strategy in three states, Andhra Pradesh, Uttar Pradesh and Karnataka, the World Bank said: "Initial experience with the approach of linking financing to state-level reforms has been encouraging."

"Sustaining and deepening fiscal and governance reforms will be the key to accelerated economic growth and poverty reduction in these states," it added.

The World Bank has so far extended $12.9 billion to 69 projects. The bank plans to extend $1.6 billion this fiscal and another $1.9 billion next fiscal, it said.

World Bank's private lending arm, International Finance Corporation, has extended $233 million in 2000-01 and $139 million in this year.