Event ReportsPublished on Feb 24, 2004
The World Bank shares a lot of the optimism that prevails in India today¿, said Michael Carter, World Bank Country Director for India, in his opening remarks at the Observer Research Foundation, New Delhi.
India-Development Challenges in a Changing World

< class="greytext1" style="font-size: small;">"The World Bank shares a lot of the optimism that prevails in India today", said Michael Carter, World Bank Country Director for India, in his opening remarks at the Observer Research Foundation, New Delhi, during his presentation on the theme "India--Development Challenges in a Changing World." more…

Carter brought out succinctly India's achievements in the last few decades and made a balanced assessment of India's past economic performance and prospects for the future, in the backdrop of the challenges that lay ahead and the progress thus far achieved in various spheres of economic activity. He noted that there were, thus, certain areas in which the World Bank could play an effective role and help India deal with some of its pressing problems. India has acquired a tremendous sense of self-confidence in the recent past because of various factors. It has taken the lead on behalf of developing countries in trade negotiations; it has repaid debts to the International Monetary Fund (IMF); Indian entrepreneurs have evinced the desire and capability to compete internationally and the Diaspora has played its own part, because they are in positions of enormous influence across the globe. Additionally, and more importantly, the emerging political atmosphere in South Asia holds the promise of greater regional cooperation. India should, thus, work more ambitiously to seek a brighter future for itself. Despite the evident acceleration in economic growth and a relatively consistent performance, some daunting challenges remain to be tackled. Carter identified five significant issues that needed to be addressed in a concerted manner. First, India can not afford to ignore that nearly 30 per cent of its population still lives below the poverty line. This inevitably leads to the problem of "inclusion" which must be ensured so that the benefits of development are distributed more equitably. Or else, there is the possibility of creating a "dualistic society" in which a large section of the populace is left behind, because statistical figures when converted into absolute numbers in the Indian context reveal really large chunks of population. Second, poverty has also come to be geographically concentrated in the country. The States of Bihar, Uttar Pradesh and Madhya Pradesh together comprise half of India's poor. The fruits of many of the achievements, thus far, remained confined to the urban sector and the gap between the rural and urban sectors seems to be only widening. Also, incidence of poverty among the scheduled castes and scheduled tribes has remained disproportionately high, over the years. Coming to the performance of the economy, Carter pointed out that private sector investment has dipped and the fiscal position remains difficult to handle. India has sustained nine to 10 per cent of GDP as fiscal deficit giving rise to some serious implications. It leads to spending larger amounts of money on debt servicing, rather than being utilisied for the development needs of the country. India will, thus, have to devise a strategy to meet this double challenge--rising expenditure and a progressive adjustment of fiscal balance. Other important challenges that India is faced with include management and allocation of resources and improvement in the quality of service by Public Sector Undertakings (PSUs). On the revenue side, the tax reforms and reduction in subsidies are the immediate concerns. The latter basically comprises power sector reforms and subsidies to the agriculture sector. Lastly, it needs to be accepted that international trading relationships are non- symmetrical and are even discriminatory, owing to the already existing imbalances in economic power between the developed and developing nations. In his concluding remarks, Carter emphasized that the right efforts needed to be made to foster a competitive environment and carry on economic reforms. The system will have to be made more efficient in terms of the incentives that it would provide for economic activities. Though many difficult issues lay ahead the future of India bears immense potential. Discussion While replying to a query on his projection that the Indian society may turn out to be 'dualistic' if poverty was not tackled effectively, he clarified: though the pattern of income distribution in India is relatively better, if inequalities persisted together with accelerated economic growth, 'dualism' may be regarded as an inevitable outcome of economic change which may take time to disappear. He pointed out that the edge India holds in the Information Technology (IT) sector could be harnessed to alleviate poverty and a mechanism could be developed to explore the linkages. Carter averred that the present situation offers an exciting opportunity to developing countries to initiate change and institutional reforms, particularly in the World Trade Organisation (WTO), if they acted as groups. He conceded that there is no quick-fix solution to the issue of 'jobless growth', which is partly set-off by the reform process. Its impact, though, may be dented by the incentives and institutional efforts that must work to maximize the effect of growth. For instance, existing Labour Laws have an adverse impact on employment generation. Contrary to the popular notion, Mr. Carter said the World Bank has no prescription for India. It, of course, has some generic views like transparency in governance and user pay principle, etc., which it tries to put in place or bolster. Responding to a question on the emergence of parallel structures and institutions alongside, for instance, Panchayati Raj institutions--which actually needed to be strengthened as instruments of development, he agreed it was a real problem that the World Bank has been grappling with. He concluded that, over the last 30 years, there has been an enormous change in terms of the ideological framework to fit in various and rapidly changing facts and situations. The debate has become more pragmatic now as the degree of consensus is higher today. There is now a sharper focus on learning from practical experience. Report is Prepared by Neha Kumar
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