Financial Regulatory Forum

India looks to state stake sales, more reforms for growth

By Reuters Staff
August 4, 2009

NEW DELHI, Aug 4 (Reuters) – India will continue economic reforms to regain a higher growth trajectory of at least 9 percent and encourage state-run firms to sell stakes through public offerings, the finance minister said.


Asia’s third largest economy was hit hard by the global crisis and expanded by 6.7 percent in 2008/09 (April-March), its slowest pace in six years and much lower than growth rates of 9 percent or more recorded in the previous three fiscal years.

A government survey last month said India needed to make sweeping reforms including removal of fuel subsidies, and to speed up infrastructure development to attain 7 percent growth in 2009/10 (April/March).

“It should be clear that the process of economic reforms that began in the early 1990s will continue in right earnest so that the economy is back on the path of 9 percent plus growth at the earliest,” Finance Minister Pranab Mukherjee told industrialists in a speech on Monday. A copy of his speech was released on Tuesday by the finance ministry.
An economic adviser to Prime Minister Manmohan Singh said it was vital that the pace of economic reforms stepped up.
“We don’t have that much policy room either on the fiscal or on the monetary policy for further accommodation than where we are,” Raghuram Rajan told reporters.
“So it seems to me that we should pick up the pace of economic reforms because reforms can help to pick up growth,” he said. “That’s why I say there is even more urgency to do that now.”

INDUSTRIAL RECOVERY
Recent data have shown incipient signs of an economic recovery — manufacturing activity held steady in July and new orders index rose to its highest in nine months.

Industrial output grew for a second successive month in May, while infrastructure output grew 6.5 percent in June, its fastest pace in 18 months.

The government would encourage and extend support to the export sector, Mukherjee said.
Exports fell 27.7 percent in June, its ninth straight monthly fall, as recessions in developed markets slashed demand for Indian goods.

Since December, the government has cut tax rates and stepped up spending to revive growth in a slowing economy. However, the fiscal stimuli would widen the fiscal deficit to 6.8 percent of GDP in 2009/10.
The government has resorted to fund this 16-year high deficit through a record borrowing of 4.51 trillion rupees ($95 billion), which analysts fear could adversely impact private borrowers.

However, Mukherjee said the borrowing programme would be carried out in a “non disruptive manner” that would not crowd out private sector investment.”

Mukherjee also said the government would sell small stakes in state-run firms through public offerings and government holding would not fall below 51 percent.

He said the government was determined to get back to fiscal consolidation at the earliest. The government has said it aims to cut the fiscal deficit to 5.5 percent of GDP by the end of 2010/11, and further to 4 percent in 2011/12.

($1=47.7 rupees) (Additional reporting by Saikat Chatterjee and Tony Munroe) (Reporting by Rajesh Kumar Singh; Editing by Richard Balmforth)

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