"The priority for the new government will be to establish an ambitious and well-specified medium-term fiscal adjustment programme, coupled with commitments to build on progress evident in a number of areas of structural reform," the IMF's World Economic Outlook (WEO) said.

"In addition to public sector reforms, prospects for growth in per capita income would greatly improve through faster progress in privatisation of state-owned banks, combined with measures to increase labour market flexibility, deregulate product markets and liberalise the trade regime," it said.

Though India is one of the few nations to have "enjoyed comparatively strong and stable growth in the 1990's" despite a world economic slump, the IMFoutlook, forecasts that real gross domestic product would dip in the year 2000 to 5.5 per cent from 5.7 per cent in 1999 and 5.8 per cent in 1998.

Estimates of recent growth in India, the IMF's semi-annual outlook said, have looked up in recent days, partly reflecting a strong rebound in agriculture, and short-term prospects have also improved. "The rise in agricultural incomes," the IMF outlook said "is providing a boost to domestic demand, and with exports recovering, industrial production has begun to revive. Inflationary pressures have declined with the easing of supply problems in a number of key agricultural commodities."

Underlining the need for faster reforms, it said the country needs "to establish conditions for strong sustainable growth over the medium term. Policy action is needed on a number of fronts - public sector deficits and trade reforms.

"A key concern is a huge public sector deficit, expected to rise to ten per cent of GDP in 1999-2000, resulting in high public sector debt andadversely affecting investment."

Successive Indian finance ministers have left out public sector deficits, amounting to 4 per cent of the GDP, from calculations, much to the dismay of World Bank and the IMF. Both these institutions, which define public sector deficit as central and state deficits plus losses suffered by the public sector, have warned against letting such expenses go unchecked.

The IMF outlook notes that trade policies have become more outward-oriented but progress in reducing tariffs slow. "Countries, such as Bangladesh, Pakistan and Sri Lanka, have eliminated quantitative restrictions and liberalization of non-tariff barriers comparable to that of Southeast Asia. Overall, however, reforms have not been as deep,'' it said.

"Bangladesh (21 per cent), India (35 per cent) and Pakistan (24 per cent) still have average tariffs that are among the world's highest. Furthermore, the process of trade reform has lost momentum in the past two years."