Ahead of the International Monetary Fund-World Bank meeting, the World Bank on Tuesday placed India as the fourth largest economy in terms of purchasing power parity, even as it said the country lagged behind in technology and efficiency.

In its World Development Report 2005, the World Bank said India's gross national income was at $3,068 billion and per capita income at $2,880 by purchasing power parity.

Among the South Asian economies, India's gross national income and per capita income stood well ahead of Pakistan's $306 billion and $2,060, respectively.

It praised the 'improved' investment climate in India during the 1980s and 1990s and said the share of private investment to GDP nearly doubled.

"As a result of liberalisation of the economy, private investment, as share of GDP, grew from less than 9.0 per cent in 1981 to more than 15 per cent in 2000. Growth increased from an average of 2.9 per cent a year in the 1970s to 5.8 per cent in the 1980s and 6.7 per cent in mid 1990s," it said.

However, the World Bank said India was held back in technology and efficiency due to lack of proper exit policy, which sought to close down inefficient industries and lay off surplus workers.

Apart from this, the report said the other factors were insistence on protecting smaller companies regardless of whether they were efficient and competitive and 'snail's pace' at which the judiciary disposes of cases.

"Though investment and productivity improved in industries close to technological frontier, they failed to improve in less technologically advanced industries," the World Bank report said.

It said the general trend was that many firms improved their total factor productivity 'significantly' but 'aggregate numbers have been slow to respond.'

"In many sectors, the dispersion of productivity has increased with the more advanced firms realising additional gains, and the least producing firms failing behind," it said.

However, the World Bank said the recent government reforms should speed up bankruptcy procedures in 2003 though it took longer in India (11 years).

Stressing that reservation policy to protect small firms was 'self-defeating' since it 'motivates small firms to stay small,' it said the policy, which encouraged the stagnation and incurred high producer and consumer costs, had 'hampered' growth in light engineering and food processing.

In a review, the bank found that over 550 items on the list of reserved products could be freely imported and as many as 90 items were manufactured by just one firm and 68 products accounted for 81 per cent of total value of production of reserved items and 83 per cent of the firms.

Finding delays in judicial dispensation, it said there was a need for an efficient court system and new research underlines the importance of well-performing courts for a sound investment climate.

Better courts reduce the risks firms face and so increase the firms' willingness to invest more, it said.

'Despite problems, India grew fast'

The World Bank focussed this year on India, China and Uganda because these countries, despite their difficulties, managed to grow fast and reduce poverty.

"We wanted to study how they did it," Francois Bourgiognon, senior vice president and chief economist of the World Bank; Warrick Smith, lead author of World Development Report 2005; and Michael Klein, World Bank/International Finance Corporation vice president for private sector development told reporters in Washington on Tuesday.

Citing the success of countries such as India, China and Uganda, the World Bank's World Development Report emphasises that everything does not have to be done at once.

Rather, significant progress can be made by addressing important constraints that face firms and by sustaining a process of ongoing improvements.

Poverty was reduced through reforms in India though there is still much to be accomplished, they said.

The level of and composition of risks, costs and barriers in competition vary widely not only across countries but also within countries. This is true among states and provinces in India and China, as in Brazil.

Improving property rights in China launched a process that lifted 400 million people out of poverty. By contrast, more than 80 per cent of firms in Bangladesh lack confidence in the courts to uphold their property rights.