According to a report in The Financial Express, in `Global Economic Prospects' (GEP), the World Bank faults the persistence of large public-sector deficits for the industrial slowdown in India. The deficits, argues GEP, crowd out private investment. But the fact is the financial system, led bybanks, is flush, and finds no takers for funds! It is true, as pointed out by GEP, that the domestic financial (system's) weaknesses are a cause for concern. But these did not lead to the run on Unit `64, as stated by GEP. Unit `64 got into trouble because the performance of the corporate sector fell short of expectations. This, in turn, reflects on-going industrial restructuring, with the blue chips of yesteryears going out of favour. Yes, the investment recession in industry has lingered too long. But the basic reason for this is not crowding out, but excess investment during the first episode of reform. Entrepreneurs ignored that the average annual growth of demand was 7 per cent or so and went ahead to accelerate investment by 25 per cent plus a year.

World Bank has but one mantra for India: reduce taxes and cut government expenditure. So it is sore about the import surcharge levied to shore up sagging tax revenues. It is true that the fiscal deficit is on the high side, but because private investmentis flagging, it is necessary to keep up public investment. A sharp cutback in the fiscal deficit will send the economy into a tail-spin, and that will depress tax revenues and give a fillip to the fiscal deficit. This is the problem facing India. GEP and like reports churned out by the World Bank need to get facts right instead of doctoring them to suit theology. Note that the same GEP advocates mega public expenditure to steer the tiger economies out of what it calls their "systemic crisis".