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'Higher Growth In 2005'

The Director, World Bank development prospects group on the GEP report and why he's upbeat about India

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'Higher Growth In 2005'
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Uri Dadush, Director, World Bank development prospects group (that spearheaded Global Economic Prospects, 2005), spoke to Outlook after the launch of the GEP report that marked the current year as the best for developing countries in the past 30 years.

The GEP report is quite high on South Asia and India. Why?
India is one of the fastest growing economies in the world. There are basically three factors why we think growth would be high in 2004 and even higher in 2005. Improvement in agriculture, lower oil prices, and consolidation of reformist economic policies and stronger demand. And high growth here contributes directly to India's own and global poverty reduction.

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Are you happy with the pace of poverty reduction?
We think so. But India needs to do more. Especially in areas of health, education, rural infrastructure and empowerment.

If India liberalises faster, how will it affect growth?
Studies have been done on the basis of other developing countries, if not India, that clearly point to a 1.5 to 2 percentage points faster growth with liberalised trade and industrial policies. There is no reason why India should be an exception. It may even do better. However, we think the recent spate of FTAs may not be so good for the economy because regional agreements lead to trade diversion.

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What explains the flow of fii funds into India?
I'm not surprised that money is flowing into India. It's the best performer in the region. You could add a billion or two easily to the FDI flow by dealing with the procedural problems. There are clearly many untapped opportunities the world is now discovering.

However, there is a note of caution. The US deficit is funded mainly by the developing countries. The reserves of six countries, including India and China, account for almost half of developing country reserves. If these countries were to slow down dollar accumulation, either the dollar will depreciate or interest rates have to go up to attract sufficient private capital. That would hit growth.

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