India : evaluating Bank assistance for private sector development - a country assistance evaluation

The basic thrust of the Bank's strategy in regard to the opening of the Indian economy, and the role of the private sector, was that its lending should be linked to the progress on stabilization, and the structural reforms which included private sector development, financial sector deregulation, industrial deregulation, and the orderly public sector retrenchment. A central feature of this strategy focused on the issue that, unless the microeconomic distortions - subsidies, wrong pricing of public utilities, labor market rigidity - were removed, private sector development would not accelerate. On reviewing the 1990s, and judging the country's reforms, the Bank's economic and sector work (ESW) was seemingly, very influential in crystallizing the Government's thinking on the reform policies. The lending program, aimed at stabilization, structural transformation, fiscal consolidation, industrial deregulation, and trade reform, helped open the economy, and reduce barriers to the private sector advancement. The overall effectiveness of the Bank's sectoral assistance strategy is assessed as satisfactory, despite some impediments prevailing in labor market rigidities, corporate governance, and slow privatization of banks, as well in the reform process of the public sector enterprises, and infrastructure development. Effectiveness of the Bank's ESW could further improve if it would involve the research institutions in India.