The Indian government proposed sweeping economic reforms Thursday and said growth could revive to as much as 7.5 percent this year if the U.S. economy bottoms out by September and the monsoon rains return to normal.
Economic growth for the fiscal year through March slowed to 6.7 percent from an average of 8.8 percent in the previous five years.
"The speed at which the Indian economy returns to the high growth path in the short term depends on the revival of the global economy, particularly the U.S. economy, and the Government's capacity to push some critical policy reforms in the coming months," the Finance Ministry said in its annual economic survey.
The report, released in advance of the nation's new budget, to be unveiled Monday, outlined a wish list of economic reforms, many of which had been blocked by left-leaning coalition partners during the previous administration.
Among the most crucial are proposals to sell down stakes in government-run companies to generate 250 billion rupees ($5.1 billion) a year and eliminate pricey fuel subsidies - both of which would ease India's gaping fiscal deficit. The central government's fiscal deficit more than doubled to 6.2 percent of gross domestic product last fiscal year, causing credit ratings agencies to threaten downgrades.
The ministry said it is "imperative" to trim that deficit back to 3 percent of GDP as soon as possible
The government's deficit has grown after it has enacted three fiscal stimulus packages of tax cuts and spending totaling 3.5 percent of GDP, on top of deep spending on fuel subsidies, government pay hikes, and farmer loan and employment programs.
The report also called for allowing more foreign investment in insurance, banking, defense and retailing, streamlining taxes, and deepening long-term debt markets.
"They are really working toward trying to restore fiscal discipline," said Sherman Chan, an economist at Moody's ( MCO - news - people ) Economist.com. The end to fuel subsidies could help normalize India's fiscal balance in the long run, but is likely to prove controversial, she said.
"There are so many low income households in India," she said. "Any policy change can spark social unrest. Just like China, India doesn't want that to happen."
Late Wednesday, the government announced fuel price hikes of 4 rupees a liter for petrol and 2 rupees a liter for diesel, causing long lines at local gas stations. Retail prices vary by location, but the hikes brought the cost of petrol in Mumbai to 48.76 rupees (about $1) a liter and diesel to 36.70 rupees a liter.
Despite citing "major concern" about falling private consumption, the Finance Ministry was generally positive on India's economic prospects. India's sound banks, adequate foreign exchange reserves, falling inflation, robust rural demand, and strong agricultural production serve as "shock absorbers" that could help spur growth, the report said
Sunday, July 5, 2009
China's eminence...
It is not Barack Obama's or the Indian Government stimulus packages that should be credited for the signs of revival in global markets. The credit should go to China for using state enterprises to create demand for raw materials around the world.For India, China present an opportunity as well as threat, specially so after the G-20 summit in London, where the US acknowledged China's dominance in the global economy.Many Indian companies source cheap Chinese raw materials and intermediates to keep prices of their end products down, and some other export semi finished goods and services to the Middle kingdom.For many others Chinese products are threat to their survival.Periodically, anti dumping duty is levied on Chinese imports.It is time for finance minister to take note of China as an important trading partner as well as rival. Instead of announcing across the board concessions on raw materials and intermediates, special duty dilutions should be applicable for those companies exporting to China or competing with China in International market.
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