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| July 5, 2000 | atimes.com | ||
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India/Pakistan
IMF urges faster reforms By Ranjit Devraj NEW DELHI - The Indian government is under pressure from the International Monetary Fund (IMF) to speed up economic reforms that some fear could seriously harm the country's small-scale industries. After consultations between IMF directors and representatives of Prime Minister Atal Bihari Vajpayee's Bharatiya Janata Party (BJP)-led government, the IMF has demanded opening up of India's highly protected small-scale industries and further tariff reductions. However, economists warn that complying with the IMF's demand means that thousands of small-scale industrial units, sustained by government subsidies, would be edged out by cheap imports from countries like China. IMF directors said in their report that India could gain from the growing globalization of goods and capital markets only by ''more rapid deregulation of the industrial and agricultural sectors''. The IMF directors were optimistic that India, buoyed up by a revival of exports, increased industrial output and a surge in domestic demand, would enjoy a growth rate exceeding the 6.25 percent it forecast in May. This tallies with the 7 percent growth forecast by the Asian Development Bank which rates India as one of Asia's three fastest growing economies along with South Korea and China. When IMF chairman Horst Kohler visited India in June, he was optimistic that India could reach an 8 -10 percent annual growth rate, provided reforms were accelerated. In April, conforming to commitments made to the World Trade Organization, India lifted quantitative restrictions on 714 items, including consumer goods. The government also pledged removal of restrictions on another 815 reserved items by April 2001. The directors of the IMF also called for a drastic widening of the tax base by reducing exemptions and bringing the services sector into the tax net. Presently, less than 2 percent of the 1 billion Indians pay income tax. However, widening the tax base needs considerable political will from a multi-party ruling coalition that depends heavily on powerful regional parties. The IMF also wants the federal government to tighten up lending to the state administrations to check a yawning budget deficit. It wants the fund transfers to be linked to financial performance of the states. Against a 5.75 percent federal deficit budgeted by the Vajpayee government in 1999-2000, the deficit grew to 7 percent which was spent mainly on government salaries and debt servicing. Looking at the 2000-2001 budget, the IMF said despite measures to boost tax receipts and reduce food and fertilizer subsidies, deficit reduction would be ''marginal at best''. As part of its bid to raise funds, the government decided, this year, to reduce its ownership of several blue chip public sector companies, including the national carrier Air India and the domestic Indian Airlines. The disinvestment is expected to fetch $2.5 billion this year. But criticism from Left parties and the BJP's own associates that champion economic nationalism has forced the government to put off disinvestment in other profitable state ventures in telecom and automobiles. The proposed privatization of India's 200-odd public sector enterprises is also being fiercely resisted by trade unions of employees in these undertakings who fear lay-offs. (Inter Press Service) |
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