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Govt will cut deficit, boost growth, Sinha tells IMF, WB

Finance Minister Yashwant Sinha has informed the World Bank and International Monetary Fund of his government's plan to reduce the ''unusually'' large fiscal deficit and boost the economic growth-rate -- both the which are issues of major concern for the multilateral institutions.

Senior advisor to the ministry of finance, Shanker Acharya, who briefed newsmen on April 16 night on Sinha's meetings with World Bank president James Wolfensohn and IMF managing director Michel Camdessus in Washington DC, said the government itself recognised the twin problems.

The IMF's 'Global Economic Outlook', released in Washington last week, and Camdessus at his press conference had drawn attention to the deficit and its ill-effects on India's economy. It also figured in Sinha's meeting with US Treasury Secretary Robert E Rubin and his deputy, Lawrence H Summers.

"It was a kind of shared concern," Acharya remarked.

Apart from expressing concern at the public sector deficit, Camdessus had stressed the need for stepping up the growth rate in India, which had declined from a record 7.5 per cent in 1996 to 5.5 per cent last year. This year, according to the IMF, it is estimated to fall further to 5.2 per cent.

The deficit has touched a high mark of 6.1 per cent of the GDP as against the target of 4.5 per cent for 1997-98, for which Acharya blamed "many factors outside the control of the government and the East Asian monetary crisis."

He said the level of deficit was not sustainable and the government would try to bring it down in 1998-99.

The minister made use of the opportunity to state that the new government was not only committed to the ongoing economic reforms but would deepen and broaden their base and accelerate the process of their implementation.

Though none asked about the Bharatiya Janata Party-led government's swadeshi concept, Sinha voluntary spelt it out, making it clear that it was neither anti-foreign nor against foreign investment.

He wanted to remove the misunderstanding that the term swadeshi had created about the Vajpayee ministry's economic policies. In fact, the BJP was the first party to talk of liberalisation and reforms when it was not fashionable to do so and socialism was the in-thing in India.

Sinha also said that the government was neither against globalisation nor deregulation. The problem was its speed. It did not want to repeat the mistakes of the East Asian countries which were now in the thick of a monetary crisis. "There is need to calibrate the process of globalisation," he said making it clear that it was not protectionism.

Sinha informed Rubin and Summers about the response of the United States investors who he had met during his stay here and in New York.

The treasury secretary felt that a clear exposition of government's policy in the next two three months would pay rich dividends later. He visualised India emerging as one of the fastest growing economies in the world.

Rubin also did not favour too much selectivity in foreign investment as it would make it difficult to achieve target of foreign capital.

Sinha also attended the meeting of the Interim Committee, the policy-making body of the IMF, which appeared virtually unanimous on the capital account convertibility as a goal. The only difference was on the pace of its implementation in the given economic conditions. "This cannot be uniform for all nations. Country-specific conditions had to be taken into account," Sinha said.

Sinha, in his speech at the Interim Committee, welcomed greater fiscal transparency by all countries "since we consider this as an essential prerequisite for good governance."

He, however, said "it is important that any internationally agreed code of conduct on fiscal transparency must make due allowance for differences among countries in the complexity of their fiscal systems and their stage of economic and statistical development."

The World Bank president, during his meeting with Sinha, stressed the need for keeping up the process of high disbursement of bank loan which India had achieved over the years. The bank has approved a record amount of loans totaling about $3 billion against India's development project this year.

The finance minister invited the World Bank chief to visit India. Wolfensohn had been to region about two years ago. The minister favoured regular visits by him because of the Bank's high level engagement with India.

Later, addressing the Development Committee, the policy-making body of the World Bank, Sinha championed the cause of the Third World and urged the rich industrial nations to restore the cuts that they had introduced in their foreign aid to the developing countries.

He expressed "great concern" at the continued downward trend in the concessional assistance to developing countries. The net ODA (official development assistance) flows of capital to this region had also turned negative, he added.

He said the crisis, in some ways, had underlined the role of official flows, especially concessional assistance in underpinning stable capital flows to poorer countries, quite apart from their key role in promoting investment in human capital and other social sectors in developing countries.

"In focussing on issues relating to capital flows at concessional terms, we should not lose sight of the urgent need to augment official concessional assistance, which is so crucial to supporting long-term development in low-income countries, many of which have limited or no immediate access to capital at concessional terms," Sinha pointed out.

He referred to the two issues: the bank's response to the East Asian crisis, and its net income, both of which, he said, had far reaching implications for its future. "We need well-considered resolutions for these issues," he added.

Sinha also wanted the World Bank to draw up agreed guidelines for the use of its net income.

The minister opposed the idea of transferring the Bank's net income to fund donors and bilateral responsibilities, while endorsing its use for debt relief to the poor countries and in the concessional lending agency, International Development Association.

With regard to the East Asian monetary crisis, the minister urged the international community to contain its negative fallout of and take "concerted measures" to speed up recovery in these countries and reduce the possibility of such crises in future.

Sinha said the net effect of downward revision in world growth expectations over the next three years as a result of the crisis was disturbing. The reductions in growth in the developing countries were twice those for world output, even though these projections still pointed to reasonable growth in developing countries over the next three years, in the range of four to five per cent, broadly in line with outcomes since 1991.

Sinha said the projections assumed that the worst effects of the crisis remained contained within Asia.

UNI