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India mulls privatisation of entire state sector in 10 years

India is drafting economic reform proposals that include targets for privatising the entire state-run sector within 10 years, according to a confidential government paper obtained by AFP on Friday.

The consultation paper, prepared by the prime minister's office for fine-tuning by the Planning Commission, envisages "complete privatisation" of the public sector over the next decade, "with 60-70 per cent achievement in the next five years."

The target seems highly ambitious, given the trouble the government has had pushing through its relatively modest privatisation proposals in recent years.

Banking and telecom workers have caused chaos in their respective sectors with a series of strikes to protest against privatisation moves that they fear will result in significant job losses.

The government recently introduced legislation in parliament to cut state equity in 27 banks to 33 per cent from 51 per cent.

But the confidential document goes further, proposing the privatisation of "at least a couple" of major state-run banks and ceding management control of some weak banks into private hands.

"A competitive banking system requires privatisation of banks, so that the full benefits of competition can accrue to the economy," it said.

Although the government set a target of 7 per cent growth in the year ending March 2001, officials have estimated it is likely to slip to 6 per cent.

The government paper spoke of 9 per cent growth, but said the target would require "far-reaching reforms in the next few years to raise savings and investment from the present level."

One of the key objectives would be to keep the fiscal deficit below 5.0 per cent of gross domestic product. Economic experts say current budget deficits are hindering economic growth.

The government is also looking to relax caps on foreign investments in the financial sector.

Pension funds of government employees could also be shifted to private managers, who would have the freedom to invest these in the stock markets or in debt instruments.

The government is also examining ways of broadening the tax base by bringing in tax-exempt sectors such as agriculture.

Reducing import duties in line with other Asian countries to boost trade is also being reviewed.

India first ushered in economic reforms in 1991, loosening the shackles of state control on many vital sectors such as telecom, banking, energy, aviation and consumer goods manufacturing.

Despite the expected slight fall in economic growth from 5.9 per cent in the year to March, India is still among the top 10 performing economies in the world. Export growth has reached nearly 30 per cent and foreign exchange reserves stand at $37 billion.

Infrastructure remains a major obstacle to economic development and the government paper proposed upgrading roads, ports, railways and power by handing over various utilities to the private sector.

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