The World Bank has praised Indias efforts to rein in the countrys large fiscal deficit, but warned that the Finance Ministrys revenue projections set out in the current fiscal year may be too optimistic, according to the World Bank press review Wednesday.
Finance Minister P. Chidambaram aims to cut the fiscal deficit to 4,4 per cent of gross domestic product in the current financial year from 4,6 per cent in fiscal 2003-2004. To help meet that target, Chidambaram plans to cut the revenue deficit – a shortfall in certain revenues that is met by taxes – by a percentage point to 2,5 per cent of GDP in the fiscal year starting April.
– A number of observers are concerned that the assumptions underlying the budget are optimistic. We share that view, Michael Carter, the World Banks country head for India said recently. Carter fretted that the government may not be able to generate enough revenue despite proposals to raise some tax rates. Furthermore, higher spending on areas such as defense, will mean less money for investment in other areas of the economy, he said.
Although some analysts have criticized Chidambarams budget plan, describing it as a tax-and-spend one, Carter said the governments proposal to raise taxes for social and rural sector programs “is not a bad thing to do.”
Only about 30 million of Indias 400 million workers pay income tax. The countrys ratio of annual tax revenue-to-GDP at 9,2 per cent is among the lowest in the world.
Carter said the World Bank plans to significantly increase lending to India to fund a broad range of programs, including loans for budgetary support in states such as Orissa.
India, the World Banks biggest creditor, received 1,5 billion US dollar worth of loans from the Bank in the year to June 30. Carter said the money will go into projects to improve Indias rural water, supply, roads, irrigation facilities and power.
Indias poor infrastructure, he said, is one of the main reasons why India receives less than a tenth of the foreign direct investment China attracts every year.
– There is a range of factors why Foreign Direct Investment in India is low, but weak infrastructure is among the most important, said Carter. – A number of other issues will also help such as more flexible labor laws, a simpler regulatory environment and the availability of reasonably priced, reliable power.
In the near term, Carter said the economys performance will depend on how much rain falls during the current monsoon season as the farm sector contributes a fifth of GDP. But he believes the economy should expand by at least 6 per cent as the industrial and services sectors appear buoyant.
Meanwhile Carter expressed “deep concern” over pilferage and the frequent transfer of bureaucrats. Elaborating on measures to curb it, Carter said: – Since much of the pilferage takes place in procurements, we will now insist even more on competitive procurement. Besides, we will also ensure better financial management. – We are going to enforce these steps with severity and are not prepared to make any compromises, he said categorically.
Carter then focused on the frequent transfer of bureaucrats linked with World Bank schemes and programmes. – There is abundant evidence that these frequent transfers of public servants have an adverse impact on the effectiveness of governance.
– In fact, it is quite apparent that an official posted for a few months on a particular job cannot work effectively. He said the World Bank had taken up the issue with the Uttar Pradesh government.
Stressing on the need for a system to monitor the performance of officials involved in the banks programmes, Carter said scathingly: – While people in public service in India are by and large talented, their performance remains disappointing.
He, however, had a special word of praise for the World Bank funded Diversified Agriculture Support Project (DASP), which was an “exception”.
Elaborating, Carter said: – In the first three years, the project had 12 different project coordinators. However, over the last two years DASP did a complete turnaround largely because of a strong, consistent and committed leadership. The project is now likely to be replicated in other states and some countries as well.
The World Bank funds projects and programmes in various sectors including energy, education, forest, agriculture and urban development.
Kilde: www.worldbank.org
