FUKUOKA, (JAPAN), May 11: The Asian Development Bank (ADB) today said that Indian markets were still "highly distorted" and the economy risked stagnating if initial reforms stalled.

India has had "much less success" than China in recent years, the Manila-based bank said in a special study to mark its 30th anniversary. India has also "lagged behind the countries of East and Southeast Asia in both growth and poverty alleviation."

"Historically, India's economic strategy differed widely from that of its East and Southeast Asian neighbours, with much greater state control of production and distribution," it said.

"Low investment productivity resulted from India's planning strategy, which was characterised by the distrust of the price mechanism, a preference for administrative controls and a belief in self-reliance that negated the efficient use of foreign trade and technology." The report said the Indian reform process initially focussed on achieving macroeconomic stabilisation through fiscal adjustment and imprved balance of payments management.

"To this end, the authorities have eased financial sector controls, strengthened prudential regulation and reduced trade restrictions. However, in each of these cases, the reforms have been modest at best. Markets for land, labour and capital are still highly distorted, many government officials continue to be lukewarm about foreign investment and the transaction costs for investors remain high,'' ADB said.

"Much more comprehensive reforms are necessary for Indian firms to be able to compete in world markets. In addition, the sustainability of the reform process is far from clear - India still lacks the consensus for open markets and integration with the world economy that is required for more rapid growth," it said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.