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WTO urges India to cut subsidies, speed tax reform

The World Trade Organisation urged India on Friday to cut the fiscal deficit by reducing subsidies, reforming tax and tariff policy and stepping up privatisations.

In its latest review of the Indian economy, the world trade body said an economic reform programme, which brought strong growth during the 1990s, had shown signs of flagging.

"The recent economic slowdown, although partly due to the overall slowdown in the world economy, also demonstrates the necessity of continuing these reform efforts," it said.

The WTO said that reducing the fiscal deficit would improve the investment climate and free up resources for investment in infrastructure, notably electricity, which had already become a major block to economic growth.

India recorded a fiscal deficit of Rs 1.36 trillion in 2001-02 (April-March) according to data which appeared on a government website earlier this month. This was just above the target of Rs 1.32 trillion, or 5.7 per cent of gross domestic product.

Despite some liberalisation of regulations covering foreign direct investment, India's record in attracting investment remained disappointing, the WTO said.

But the various steps taken to improve enforcement of intellectual property rights should help, it added.

While import licensing and tariff restrictions were generally declining, there appeared to have been an increase in the resort to other measures such as anti-dumping, with some 250 cases initiated since 1995.

Price controls, currently maintained on several products, including fertilisers, petroleum products and some agricultural products, added to the fiscal burden, it said.

In its reply, India complained that its exports were being restricted by new barriers being raised by developed country partners, including scientifically unjustified health standards.

It said that exports of textiles and clothing, which account for 30 per cent of India's goods exports, faced restrictions because developed states had been slow to implement an agreement to phase out tariff barriers.

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