Dr Nicholas Stern, Senior Vice-President and Chief Economist at the World Bank, was in India recently. Considered a friend of India, Stern spoke of the need for greater liberalisation in world trade to alleviate poverty. In an interview with Mamata Singh, he said India had the potential to grow at 8 per cent, and needed to take a leading position in trade negotiations and speak for developing countries
Given the fact that reforms have almost grounded to a halt in India, is an 8 per cent growth possible over the next five years?
I don't think reforms have stopped. The Fiscal Responsibility and Budget Management Bill and the reforms in the banking sector required legislation, which is the culmination of work undertaken in the past few years. An 8 per cent growth is feasible if reforms accelerate.
In fact, the international community is optimistic about India's chances because of the comfortable growth in gross domestic product and the decrease in poverty in the post-reform period.
However, within India, there is a certain pessimism. I think this is because the potential for growth has not been realised and Indians see that.
You advocate unilateral action on the liberalisation front--Isn't that dangerous for developing countries, given the fact that developed countries have not fulfilled their obligations with respect to market access in return for liberalisation in the past?
Unilateral action on liberalisation in trade has benefited India. The trade to GDP ratio has gone up from 7 per cent to 14 per cent, and growth has accelerated over the 1990s. Therefore, it is not an unusual suggestion. The government should continue to focus on reforms.
India is competitive and has suffered by trying to protect industry. Protecting one industry means penalising another by encouraging misallocation of resources in the economy.
The growth in output has been slower than it could have been. Take the machine tools industry--from the 1950s to the early 1990s, it operated in a protected environment, with tariffs as high as 100 per cent.
After 1992, tariffs fell to around 15 per cent, and competition from imports threatened the viability of domestic producers.
But what about the social costs? With a large section of the population dependent on agriculture, what will happen if the country opens up the farm sector and is flooded by heavily subsidised products from the US and the EU?
The power subsidy to the agriculture sector has led to a decline in the quality of power. There is wastage.
Moreover, only the rich possess pump-sets, so it is they who are benefiting from the subsidy. The damage extends beyond the rural sector.
High support prices have led to excess stocks, and high carrying costs have forced India to dump rice and wheat in the world market.
The fertiliser subsidy was introduced 40 years ago to encourage farmers to use new techniques. It is continuing. If the money is used for developing rural roads, education and extension services, it will increase employment opportunities and improve the investment climate for small businesses.
So you think the fear of liberalisation expressed by developing countries is misplaced?
If all countries move on the path to liberalisation, all will gain. Developed countries put up barriers to trade, such as tariff escalation, tariff peaks, anti-dumping duties and agricultural subsidies. The World Bank is opposed to this.
However, it must be kept in mind that returns to poor countries from liberalisation will be more than those for rich countries.
Unilateral liberalisation will also help developing countries push for greater access to markets in the developed countries.
In fact, developing countries should join the cause with groups in rich countries who want development in poor countries.
These groups have political clout and demand that their governments give a better deal to poor countries.
India should take the lead in the discussions on trade in the World Trade Organisation (WTO). It has the capacity to lead the world towards development. It is respected the world over for its democracy.
China is gradually taking centrestage by joining the WTO and participating in world trade.
If China and India take their place together on the world stage, they can change global politics and economics.
