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IMF Lists Obstacles to India's Economic Expansion


The International Monetary Fund says India needs to lower trade barriers to ensure sustained high economic growth. India has been among the world's fastest-growing economies in recent years.

A report by the International Monetary Fund says India needs more "dramatic action" to free up what the report calls a "relatively closed economy." It says this is necessary to maintain growth momentum in an economy, despite its recent successes, that is still only in the early stages of taking off.

The report says that more than a decade after India began opening up its state-controlled economy, the conditions for doing business are often difficult, and tariffs remain high, at an average of 22 percent.

It says the country's trading rules need to be liberalized further. It also says that although the country's exports are growing steadily, they are still as low as one percent of the global total.

Arvind Virmani, director general of the Indian Council for Research on International Economic Relations in New Delhi, says India did have the highest tariffs in the world a few years ago, but they are being gradually brought down.

"Now instead of being the highest we would be maybe in the top quarter," he said. "So we are beginning to make progress, but the top quarter is not where we want to be. We should hold firm, keep at it and reduce them [tariffs] to global levels over the next four years."

The IMF report says India lags behind many East Asian countries in attracting foreign direct investment. Economists say that while India has attracted a good deal of foreign investment for its outsourcing businesses, it needs to do more to bring in outside funding for its manufacturing sector.

IMF officials say this can be done if India improves the business climate in the country. They note that while it takes 22 days to start a business in South Korea and 41 days in China, it takes up to 89 days to do the same in India.

It also takes much longer to enforce a business contract in India, and rigid labor laws discourage many businesses from setting up shop in the country.

Mr. Virmani says policy-makers are aware of these problems, but they have to be addressed gradually in a democracy, where measures such as labor reforms attract much political opposition.

"There is no doubt about it that we are moving in the right direction, and given the democratic system," he said. "It is very important to go slow and steady and to increase the pace wherever it is possible to do so."

India's economy grew at around seven per cent in the financial year that ended in March 2005. That is lower than the previous year's growth of over eight percent, but still among the fastest in the world.

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