MUMBAI, MAR 31: Painting a grim fiscal deficit scenario, Charles Dallara, managing director of the Institute of International Finance (IIF), Washington said that the foreign direct investment (FDI) inflow to India would decline from $ 2.8 billion to $ 2.6 billion in the calender 1998 as compared to 1997. Of this, he said, foreign portfolio investment would decline to $ 1.6 billion in the current year as compared to $ 2.5 billion in 1997.The former executive director of IMF said India should take every possible step to increase FDI into the country and at the same time control its widening fiscal deficit.
Talking to newspersons today, Dallara expressed concern about the growth in the fiscal deficit. "In Thailand, Indonesia and other southeast Asian countries, the macro-economic imbalances are due to external factors. In India, macro-economic imbalances are triggered by domestic factors as well as external factors," he said.
To control fiscal deficit, he suggested that the government should eliminatethose subsidies which are made on political grounds rather than human needs. "The government should also strive to reduce its role and size, while ensuring wage hike among its employees based only on productivity," he said.He further suggested disinvestment in the public sector units on a war footing basis and improving the tax structure to contain the fiscal deficit. "Weak export performance is a worrying factor for the Indian economy. The government must find out the reasons for deceleration in exports whether it is due to the absence of good ports or other bureaucratic problems," said he."A protected and over-regulated economy, built around vested interests, is extremely vulnerable when there is a global recession," he said. He also warned that the cost of policy mistakes is very serious.
He said the the new government should welcome foreign investments in all sectors instead of any `swadeshi' bais. "One should not protect an inefficient and weak industry in the name of nationalism," said he. "Thefirst statements by the new finance minister suggests that the new government means business," he said. "But a lot has to be done, especially in the infrastructure sector where encouragement to the foreign investment is necessary," he said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
