Reforms needed to sustain Indian growth: IMF

Washington, Mar 9: India needs to build infrastructure and reduce poverty faster to ensure it can sustain rapid economic growth, experts from the International Monetary Fund and World Bank said today.

Charles Kramer, division chief of the Asia and Pacific Department of the IMF, said India must grapple for a balance between the rapid growth of as high as 8 percent it has achieved in recent years and dangers of overheating.

Potential for sustained growth is underpinned by India's young and growing workforce and a high ratio of workers to retirees, increasing productivity and the modernization of its financial system that has seen credit expand, he said.

However, signs of inflationary pressure can be seen in industrial capacity utilization hitting a 14-year high, rising wages and goods prices and the credit expansion, Kramer told a symposium at the Brookings Institution in Washington.

The IMF recommends that India continue policies to tighten an accommodative monetary policy, reduce public debt and modernize the financial sector while also addressing bottlenecks in water supply, electricity and transportation, he said.

''Through a better alignment of fiscal and monetary policies, through bolstering the infrastructure and developing capital markets, we think that India can strike the right kind of trade-off between overheating and growth and really make growth sustainable over the medium term,'' he said.

Shantayanan Devarajan, chief economist of the Human Development Network of the World Bank, said India faces ''huge political constraints'' to reforms that would help share the growth among India's one billion still mostly poor people.

''Even though growth has really accelerated, what's really quite surprising is that the rate of poverty decline has not accelerated,'' he said. Poverty declined at one per cent annually in the 1960s and at the same rate early in this decade.

In India, where 93 per cent of the labour force of 400 million people is informal, fast growth has also not been matched by a comparable increase in employment, said Devarajan.

India's much-celebrated information sector and outsourcing successes still employ at most two million people, while ''the bulk of the labour force is in a very different situation than what we hear about in the newspapers,'' he said.

Devarajan faulted rigid labor regulations that make it costly to hire and fire Indian workers and vested interests that blunt or distort economic reforms at the grass-roots level and local governments which fail to deliver services.

''Politics is standing in the way of not just making markets work but making markets work for the poor,'' he said, warning of possible backlashes if more Indians are unable to reap benefits from economic liberalization.

Reuters