NEW DELHI, June 27: The World Bank's latest report on India which was presented in Paris at the Aid India meet a few days ago is very critical of the pace of economic reforms. While the report commends the higher growth of the last few years and talks of the reforms in various sectors, despite the political uncertainty, it says that the reforms in infrastructure areas are taking place much too slowly to address the crisis.

Thus, for example, the report points out that little has been done to address labour-related issues at the ports. While the tremendous profitability of the Jawarlal Nehru Port Trust ensured that private parties are interested in setting up facilities there, rigid labour conditions in other ports ensures that few private players want to invest there.

The report also states that the record of reforms in public sector enterprises (PSEs) has been quite poor. It says: "...there are no signs yet that its (Disinvestment Commission's) recommendations will be adopted by the government and that a rapid process of disinvestment will take place."

According to the Bank, despite the Finance Minister's ability to stick to his fiscal deficit target in 1996-97, the crux of the problem remains that the quality of government spending hasn't improved. According to the recent paper on subsidies, these subsidies eat up a staggering 15 per cent of GDP worse, a large part of this goes in non-merit subsidies.

As a result, the country's combined fiscal deficit remains a high 9.2 per cent of GDP -- up from 8.9 per cent in 1995-96. The main reason is that while the Central government's budget deficit came down in 1996-97, the deficit of public sector units and the oil pool deficit (0.8 per cent of GDP) increased.

With little progress in improving the quality of expenditure and in reducing expenditure on PSUs and the oil pool deficit, the Bank believes it will be an uphill task to achieve the fiscal deficit target of 4.5 per cent of GDP in the current year.

According to the Bank's economists, the sharp cuts in tax rates could actually see a fall in revenue collections, unless there is a very sharp increase in tax compliance.

More important, implementing the Fifth Pay Commission's recommendations itself will increase expenditure by around 0.8 per cent of GDP -- for state governments, the problem will be greater as salaries form a larger part of their total expenditure. Another potential source of fiscal pressure is the food subsidy for families below the poverty line. While the Budget has assumed an expenditure of Rs 7,700 crore under this head.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.