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WB puts India's '99 GDP growth rate at a low 4.8 per cent

C K Arora in Washington

The World Bank has highlighted India's inability to achieve a higher growth rate of seven per cent per annum in the medium term, which will tell upon the government's efforts to reduce poverty.

The bank's annual Global Development Finance Report for 1999, released in Washington yesterday, visualises growth over the medium term at below the 6.5-7 per cent mark needed to reduce poverty.

It expects a gross domestic product growth rate of 5.8 per cent in fiscal 1998-99, which will decline to 4.8 per cent in 1999-2000 -- far below the minimum needed to pull up the millions below the poverty line.

It has calculated the growth rate for 1999-2000 at 4.8 per cent on the basis of a rebound in fixed capital formation and acceleration in industrial production.

The report says a significant acceleration in growth over the forecast period will be difficult to achieve, as restrictive trade policies, high public-sector deficit, and supply bottlenecks will continue to constrain growth over the medium term.

The report also draws attention to what the bank calls "some extremely dynamic and competitive sectors" in the Indian economy. They include software (growing at more than 75 per cent per annum) and gems and jewellery (ten per cent). But economic reforms are needed to revitalise the economy as a whole, it says.

The document notes that the Indian currency was allowed throughout 1998 to drift lower to safeguard the competitiveness of Resurgent India Bond in August 1998, attracting more than $4 billion from Non-Resident Indians. But trade and fiscal balances deteriorated.

The trade deficit widened and, despite low oil prices, the current account deficit may reach 2.5 per cent of the GDP in 1998-99 as against 1.6 per cent in 1997-98. The central government's deficit may rise to about 6 per cent of the GDP in 1998-99, above the target of 5.6 per cent, because of a shortfall in revenues.

The bank's report says aggregate flows to the region declined from $15 billion in 1997 to $12 billion in 1998. Net private flows fell to $8 billion. While foreign direct investment declined only slightly, flows from the international capital markets (bonds, bank lending and portfolio equity) fell by half to $3 billion.

As in years past, India received most of the region's net private flows, the report notes. Net private-source debt flows to South Asia totalled $3 billion in 1998, down only slightly from $4 billion in 1997, despite investors' concerns at the implications of the foreign reaction to the nuclear tests in India and Pakistan.

Another factor contributing to the lower figure was the general retreat from emerging markets following the Russian debt moratorium in August. Portfolio equity flows fell by almost $2 billion in 1998 to $4 billion. Flows to India accounted for more of the total flows to the region. Pakistan received $221 million in 1998, compared with $268 million in 1997.

FDI flow to the region was $4.4 billion in 1998, down from $4.7 billion in 1997. India, which received 80 per cent of the region's foreign direct investment flows in 1998, experienced an increase in the flow in 1998.

UNI

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