THE World Bank Group (WBG) has suggested that India should increase efficiency of both tax collection and public expenditure, apart from focusing on tax reforms.

In its Country Partnership Strategy (CPS) for India for financial years 2013-17, WBG says: “Government will need to break the current policy logjam and push through deeper and more difficult reforms needed to improve the business climate, increase tax efficiency, and improve the efficiency of public expenditures. While general elections will be held in 2014, it will be important to recognize that continued progress on the reform agenda will be critical to the country's progress toward the vision of India in 2030—a country that triples its per capita income in just one generation, reduces poverty to 5.5 percent, and increased shared prosperity.”

As for tax reforms, it suggests: “To benefit from economies of scale and increase competitiveness, there is a need to remove physical and policy barriers across states (notably the multilayered system of taxation) that impede markets from functioning efficiently.”

WBG observes: “A cumbersome and multilayered system of taxation across states further impedes the flow of goods, as do state-specific restrictions on agriculture trade. A new goods and services tax (GST), proposed in 2010 but not yet approved, is a major Government effort to streamline the unwieldy tax system. Experience among states in the United States and among countries in the European Union—the ultimate “income convergence machine”—shows the strong link between economic integration among confederated states and income convergence. The more integrated the country, the more balanced the growth.”

WBG intends to focus on d omestic market integration to speed up economic growth. It has identified three domains that require reforms as well as its assistance. These are: taxation, procurement, and labor markets.

It considers t he successful implementation of the long-delayed Goods and Services Tax (GST) as central to Government efforts to integrate the domestic market. Building on the implementation of the GST, the WBG is keen to provide policy advice and facilitate knowledge exchange with countries, such as Brazil, that have been successful in tackling the same issue.

WBG also intend to provide analytical support and non-lending technical assistance to state governments and third-tier local governments, especially local urban bodies, to expand their revenue bases.

It reckons that labor laws that facilitate the movement of people to jobs, without discrimination based on location or industry, are important. And, as workers move across state boundaries and from villages to cities, the portability of social security benefits (made easier with the introduction of the unique identification number) will assume great importance.

It has proposed a multi-year study on growth, inclusion and global competitiveness to address issues related to the labour market. WBG intends to support implementation of the national manufacturing policy and improvements in the business climate.

As the public sector is a major consumer of goods and services produced in the domestic economy, reform and standardization of the procurement system at the national and state levels are key measures to foster domestic market integration and competition.

The World Bank will help develop public procurement certification courses and procurement-related management information systems, facilitate networking among public procurement resource institutions, and engagement with audit institutions to undertake procurement audits.

As for growth prospects, CSP has reckoned that India's GDP grow modestly to 6.4 percent in the 2013 fiscal year, and rise to 7.3 percent in 2015. However, elevated inflation and large fiscal and current account deficits will remain concerns.

It observes: “Continued sluggishness of the global economy is likely to affect India's growth prospects in the short-term. Although recent policy announcements have helped improve investors' confidence, the Government will need to break the current policy logjam and push through deeper and more difficult reforms needed to improve the business climate.

While general elections will be held in 2014, it will be important to recognize that continued progress on the reform agenda will be critical to the country's progress toward the vision of India in 2030—a country that triples its per capita income in just one generation, reduces poverty to 5.5 percent, and increased shared prosperity.