Outgoing World Bank chief economist Nicholas Stern on Saturday lauded India's efforts in boosting the growth rate from 3.5 per cent per annum to over 5 per cent by doing away with the licence raj, but warned that unsatisfactory development in rural areas of the country and corruption in some states posed major challenges for economic growth.

"From a growth of 3 or 3.5 to move to something over 5 per cent, I think it is a very important step forward. This is due to the economic policies like reducing the effects of the licence raj," Stern told a press conference in Dubai.

However, in the rural areas, he said India has 'not done so well' in particular the North Eastern states which required more concentration.

Stern said the economy had still to improve the infrastructure including providing drinking water and augmenting power supply.

He said problems like corruption in some states still remained to be tackled for accelerating economic growth in the country.

The new chief economist Francois Bourguigon who will take over from Stern next month appreciated the public distribution system in India and said this would guarantee every one their share of food and other necessities.

Bourguignon, a French national, said India needed to concentrate on growth and improve upon its efficiency to cover all the people in the country.

On the Cancun summit, he admitted it was not a success though 'it is not the end of the story.'

He said there was still some time for the negotiations to be completed and "eventually we will get to some agreement."

Burguignon, however, said he was not sure whether the agreement would address the concerns of all the countries. He said it would difficult for the rich countries to bring down their subsidies drastically without the consent of the people.

Referring to Pakistan, he said a lot has been done with emphasis on poverty reduction programmes.

There was need to plug the leakages to ensure these programmes reach the right people.

The outgoing chief economist Stern is being appointed the second permanent secretary and managing director, budget and public finances at the Treasury of United Kingdom.

He will also head Britain Government's Economic Service.

In reply to a query on whether the setback to the divestment of BPCL and HPCL will have any impact on FDI into India, Stern said the investors will only look more closely at whether the reform process itself is slowing down.

In case they felt it was slowing down, then it will could lead to a slowdown in the FDI and portfolio investments into India, he said.

On economic reforms in Pakistan, he said if Islamabad steps up its growth rate and continues to maintain the momentum, it could lead to a convergence in growth rates of both India and Pakistan.

However, since 1990s India's reform process has been ahead of Pakistan, he said.