The report, titled "Global Economic Prospects," complains about the lack of any "concrete proposal" in India's budget for 1998-99 for further substantial reductions in the public-sector deficit. The bank calls India's alternative strategy to increase revenues through higher excise collections and import tariffs as"potentially a step in the wrong direction." "If growth targets of over 6 per cent do not materialise, the total public-sector deficit could well persist at more than 9 per cent of gross domestic product (GDP), representing one of the biggest challenges for the Indian economy," it warns.

It notes that the Indian economy slowed to 5 per cent in fiscal 1997-98, following three years of rapid advances averaging 7.5 per cent. While a decline in agricultural output was a contributing factor, non-agricultural GDP growth had begun to slow down in 1996-97. Indeed, industrial output has fallen from 12.5 per cent in 1995-96 to 6.4 per cent in 1996-97, and further to 5.7 per cent in 1997-98. Contributing to the slowdown was the persistence of large public-sector deficits (crowding out private investment), a decline in export growth since 1995-96 and cutbacks in investment because of uncertainty about reforms, the report notes. It draws attention to the slight fall in the public-sector deficit to 9.1 per cent of GDPthanks to a cut in subsidies on petroleum products that brought domestic oil prices closer to world prices. But it faults the 1998-99 budget for absence of any provision for further reduction. Stiglitz and senior economists Mick Riordon and Milan Brahmbhatt say domestic financial weaknesses remain a concern, and will need to be addressed if the financial system is to be a source of strength rather than a drag on longer-term growth -- as evidenced most recently by a run on deposits with the state-owned investment corporation, Unit Trust of India (UTI).

"Domestic stock markets, already depressed, slumped further in response," it adds.

On the export front too, India has registered a decline. After three years of high (19 per cent between 1993 and 1996) growth, the increase in the nominal value of export slowed dramatically to 4.6 per cent in 1996-97 and 2.7 per cent in 1997-98.

But volume growth dropped by much less, from 9 per cent in 1996 to about 6 per cent in 1998. Import value growth also fell,yielding a modest increase in the current-account deficit to 1.6 per cent of GDP (the real volume of imports fell, reflecting the slowdown in domestic growth).

While the 16 per cent decline in the rupee against the dollar over the past year will offset some of the loss of export competitiveness to Asean members, it points out, competitive conditions for Indian and other South Asian growth to the European Union and North American markets will remain difficult for some time.

Dealing with the South Asian economic scene, the report says the economies of the region and their 1.2 billion people need to accelerate growth rates to 7 per cent and keep them there to reduce poverty and raise standards of living faster.

It says growth picked up significantly between 1992 and 1996 following trade and investment liberalisation and significant depreciation of real exchange rates, especially in India. Favourable global economic conditions helped out, giving exports and foreign direct investment (FDI) inflows aboost.

"But new challenges are clouding the region's prospects, from the effects of economic sanctions to wavering attention to reform and worrisome dangers that the trade fallout of the East Asian crisis will impact South Asia," it adds.

Though still relatively insulated by the structure of their economies from the immediate fallout of the global financial crisis, South Asian economies are slowing perceptibly -- growth went from about 7 per cent in 1996 to 5 per cent in 1997.

The report says the global economic slowdown will exert some drag on regional growth as a slackening in export markets pulls growth down to 4.6 per cent in 1998, and holds it below 5 per cent in 1999.

(India Abroad News Service)