Subsidies large, reform stuck: World Bank

By Vaiju Naravane

PARIS MAY 24. The World Bank's Country Director for India, Mr. Edwin Lim, gave India a sharp rap on the knuckles when he said, ``The benefits of growth are not being translated into poverty reduction. Household survey data shows poverty stagnating in the Nineties. India's fiscal position has worsened in recent years.

``Indeed, many now talk of a fiscal crisis and certainly in many States this is what one sees. Revenues are falling. Subsidies remain large. Despite progress in some sectors, reform is stuck in some important areas, even when the need for change is obvious,'' he told the meeting.

While there was a strong case for increased official and concessional resource flows to India, Mr. Lim said it would have to be matched by improved policy performance. He said the Bank, other lending institutions and donor nations were not posing conditions, they were merely being practical.

``Operating as a funding agency in a situation of fiscal crisis is not easy,'' he underlined. ``If roads cannot be fixed, canals repaired and teachers paid, expanding the asset base is at best a dubious strategy,'' Mr. Lim said.

The seriousness of India's fiscal position could not be emphasised enough. ``The fiscal crisis is undermining the developmental role of the Government in India. Some of the figures are indeed horrifying. At the Central level almost half the revenues are consumed by interest payments. In an increasing number of States, salaries, pensions and interest payments more than exhaust revenue proceeds,'' he added.

Urges tax reform

India simply cannot avoid tax reform any longer at the Central, and more importantly, at the State level. Subsidies must be reduced, corruption tackled, and management and governance improved. India must not fight shy of the second wave of reforms, Mr. Lim said. He indicated that the World Bank would be more inclined to give a hand to those States which are undertaking comprehensive reforms.

It is after a three-year gap that the India Forum meeting is being held again. The meetings were suspended after the Pokhran nuclear blasts and several donor nations had decided to impose economic sanctions against India.

The question of concessional development aid was approached gingerly at this meeting with India refraining from making any outright demands of the donor nations. However, the head of the Indian delegation, Dr. E.A.S. Sarma, Secretary,

Economic Affairs, pointed out that ``the continuing prevalence of poverty despite reforms has necessitated the ongoing economic reforms being subject to greater public scrutiny with reference to their efficacy in eradicating poverty.''

International lending institutions had laid emphasis on better governance, fiscal discipline, privatisation and market-friendly, liberal economic policies. But these recommendations had not necessarily translated into reduced poverty even in countries which had seriously applied them.

He called upon donor nations to be more discerning about the efficacy of aid and asked them to better monitor the effectiveness of developmental aid.

Developing countries such as India have adopted market-friendly policies and are opening up their economies through economic restructuring and reforms, Dr. Sarma said. At the same time, they are also required to make significant investments on poverty alleviation.

Macroeconomic restructuring, Dr. Sarma argued, must be backed up by greater external assistance in promoting human development if they are to generate higher growth. Economic restructuring, he said, becomes acceptable only when they are adequately matched by social sector programmes aimed at poverty alleviation and development of human resources.

The Bank has repeatedly called for more investment in education and health and other ``social measures'' aimed at poverty reduction with reforms such as downsizing, a reduced fiscal deficit, privatisation and reduced subsidies.

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