IMF calls for more reforms

By Our Special Correspondent

CHENNAI, AUG. 16. Calling for a continuation with India's ongoing economic reforms process, the International Monetary Fund (IMF) has emphasised the need for a more comprehensive re-casting of the economy across all sectors.

In its assessment of the Indian economy - following the Article IV Consultation - which concluded in June, the Fund's Executive Board has called for measures to ``improve productivity and growth in the industrial sector.''

On issues relating to economic policy and legislation, the Fund has called for reforms in areas such as laws relating to bankruptcy, policies governing the small-scale sector, privatising government enterprises and, more important, liberalisation of labour laws to improve competitiveness.

The assessment, which noted that the ``near-term outlook had become somewhat less favourable, said though the ``external position appeared comfortable and inflation pressures had waned, growth had slowed in recent years and the global slowdown may have further adverse implications.''

In addition to ``external shocks, there were continued signs that domestic structural constraints and the fiscal situation were adversely affecting investment and the economy's underlying potential,'' the IMF observed.

The performance of the economy during the 1990s, the IMF said, was ``favourable'' but it still held out the caution that despite ``substantial improvement in many social indicators, including a significant reduction in the poverty rate,'' poverty reduction remained a ``significant policy challenge''.

On structural reforms, which the country embarked upon a decade ago, the Fund ``welcomed recent plans to open up the economy further and address some of the deep-seated structural problems still facing India'' and described as ``impressive'', the blueprint for second-generation structural reforms.''

For the power sector, the Fund has stressed that the measures for reform include ``tariff increases for agricultural consumers and measures to reduce theft and other distribution losses.''

The IMF's directors have also said that ``additional measures to attract foreign direct investment would help increase growth, including continued efforts to streamline administrative procedures and regulations.''

For the agricultural sector, they urged implementation of measures to ease restrictions on the trade and movement of agricultural commodities, sharply reduce the role of government procurement agencies, and improve cost recovery.

Less favourable outlook

The assessment of the IMF is to be seen against the backdrop of the performance of the Indian economy which has shown a decelerating trend in recent years.

The main reasons listed by the Fund for such a downward trend include ``the waning effects of large civil service salary hikes in previous years, ongoing drought conditions in some States, and domestic energy price hikes in response to world oil market conditions.''

Moreover, ``business investment and confidence also have been adversely affected by infrastructure constraints, excess capacity, uncertainty regarding the effect of the elimination of quantitative import restrictions on competitiveness, and high real interest rates.''

The financial market confidence ``remained fragile'' the IMF noted, pointing out that ``though the stock market had recovered from the sharp losses suffered in early 2000, a stock market scandal, which involved accusations of insider trading and payment defaults by some brokers, and led to the closing of an urban cooperative bank, contributed to further declines.''

The proposals for second generation reforms as suggested by the Prime Minister's Economic Advisory Committee and the 2001-02 budget have been seen as positive signals.

While the budget was described as containing ``welcome commitments to structural reform'' it had emphasised ``growth rather than significant deficit reductions,'' the IMF said.

On the prospects, the IMF was of the view that as the overall public sector deficit and debt appeared likely to remain high in 2001-02, the `` critical priority in the period ahead remained to place the fiscal position on a sustainable path.''

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