Making his presentation on Opportunities for India in a Changing World on the second day of the three-day World Banks Annual Bank Conference on Development Economics (ABCDE) on Thursday, Mr Stern said India needs to hasten the reform process to reach the targeted eight per cent growth rate.
Mr Stern also said that rich countries should back their pledges to help reduce poverty by removing trade barriers on exports from developing countries and increase aid. Rich nations should ease trade restrictions, increase aid flows to countries engaged in fundamental reforms and support enhanced capital flows to developing countries, he said.
Regarding India, Mr Stern has suggested three areas for special attention: public finance, trade liberalisation, and improvement in the investment climate. Progress on these issues will make a major contribution to accelerating development in the lagging regions and rural areas, he added. Mr Stern however, said that there was no threat of any macro economic stability problem. But the public debt-to-GDP ratio has been rising, squeezing out public investment, particularly in infrastructure. Weakness in public finance runs through many of the problems confronting the Indian economy today. It has contributed to poor public infrastructure, weak public health and education systems. India does not have any deficiency of doctors, engineers or teachers but lacks resources due to large public debt for spending in building hospitals, infrastructure and schools, he pointed out.
The problems in the public finance system are already exacting a toll. Of particular concern is the rising revenue deficit, which has doubled in the last six years, he said.
Quoting from a recent World Bank survey, Mr Stern said to start a new business in India it requires 10 permits and an average of 90 days, compared to just six permits and 30 days in China.
However Mr Stern said he is cautiously optimistic about the countrys future. I am optimistic because the barriers are big and therefore the returns to dismantling them are high and because India has demonstrated her ability to move forward. But I am cautious because, in pushing forward with reforms, it is always necessary to overcome short-sightedness and the special pleading of many vested interests who gain from the existing structures.