Rich Returns From The Reforms

EVEN as finance minister Yashwant Sinha called upon the International Monetary Fund (IMF) policy setting committee to hike its quota allocation to developing countries, his prayers for more funds may be answered by its sister organ-isation, the World Bank. Bank aid to India is set to double to $3 billion this year. Sinha concluded his US visit by attending the Fund-Bank Spring Meeting being attended by finance ministers of 182 countries, which also coincided with the meetings of the powerful Group of Seven industrialised countries.

Bank chief economist for South Asia, John Williamson, was quite encouraged by Sinha and his team's commitment to reforms. He seemed to agree with Sinha's unequivocal comment on going slow on financial reforms and sequencing capital convertibility of the rupee. "I would get off the boat on welcoming heavy short-term investment flows into the country," he said.

Bank officials told Outlook that the main reason why India's loan portfolio could increase significantly was the progress, though uneven, of reforms. "There's a realisation both by the Indian government and the Bank that India has not been borrowing as much as it is qualified to do. We are likely to see a doubling of the loans to India," the official said.

What's more important, the IDA (International Development Association) component of the loans, which are virtually interest-free, is also set to rise. Currently, the IDA part is about two-thirds of total Bank loans.

India is the Bank's largest single borrower, with cumulative lending of around $49 billion at June-end 1997, and the largest overall recipient of IDA aid. In a position paper on India, the Bank noted: "One main obstacle to further development lies in India's fiscal imbalances. Only when these imbalances are corrected will the high real interest rates that have prevailed in the recent past decline. While the government has made gains in reducing its fiscal deficit, these have been offset by a recent deterioration in the financial position of public enterprises."