1. In the early 1990s in India, wide-ranging structural reforms yielded notable gains, and by several measures, India’s economic performance during the decade compared favorably with most other developing countries. The reforms started the process of unshackling and opening up the Indian economy and resulted in a significant boost to growth, investment, and exports, and in a marked reduction in poverty. Growth in the 1990s was second only to China in the region. India’s performance was also favorable on some measures of macroeconomic stability—namely inflation and current account deficits.
2. However, by another critical measure of macroeconomic stability—namely the public finances—India’s performance is notably worse than other developing countries. India’s fiscal deficit has been one of the highest among a sample of developing countries, with only Albania, Lebanon, Mongolia and Zimbabwe having general government deficits that are as large or larger than in India. Moreover, the fiscal situation has proven to be an intractable problem.
3. This set of selected issues brings together staff work over the past year on key policy issues in India. These are: growth and investment; the fiscal problem; India in the global economy; and the financial sector.
4. Chapter II presents an analysis of recent trends in growth and investment in the 1990s, with a focus on the slowdown in growth during the second half of the 1990s.
5. Chapter III discusses the fiscal situation, outlining the key reasons for the deterioration in fiscal balances, how the fiscal situation compares with other developing countries, and the key lessons from countries that managed successful fiscal consolidation.
(Average, in percent per annum)
|Real GDP Growth||Per Capita GDP Growth|
|Asian developing Countries||4.2||2.1||2.4||0.4|
|All developing countries||5.4||4.0||3.8||3.1|
(In percent per annum)
(In percent of GDP)
|Asian developing Countries||8.9||9.4||−0.8||2.8|
|All developing countries||20.3||7.9||−1.2||−0.3|
(In percent of GDP)
6. Chapter IV contains an assessment of India’s opening to global trade and factors that may be affecting India’s export performance.
7. Chapter V examines the impact of the financial sector reforms since the early 1990s on the performance of commercial banks in India. The paper analyzes the behavior of industry concentration, cost of intermediation, and profitability of the banking sector, with a focus on public sector banks, the dominant segment of the banking system.
8. Chapter VI reviews the nature of nonperforming assets (NPAs) in the Indian banking system and discusses the key design features of an asset reconstruction company to ensure effective resolution of NPAs. The analysis draws upon recent regional and cross-country experiences in dealing with impaired assets during periods of financial crises.