Singh commits India to financial reform
Manmohan Singh, India's prime minister, on Sunday sought to override divisions in his ruling coalition by pledging to fulfill a deep financial reform programme in Asia's third-largest economy.
He also signaled the "winding down" of fiscal stimulus measures next year. These have helped spare India from the worst of the global financial crisis with support to the rural economy, infrastructure and export sectors. Only last week, India's central bank began tightening monetary policy. The reform agenda includes developing long-term debt markets, a corporate bond market, strong insurance and pension sectors and futures markets. Government disinvestments in state-owned companies would be accelerated.
Mr. Singh told the World Economic Forum's meeting in New Delhi: "These issues will be addressed through gradual but steady progress in financial sector reforms to make the sector more competitive while ensuring an efficient regulatory and oversight system." His comments were seen as seeking to dispel investor anxiety over previously agreed financial reforms that have not yet been carried out. India's premier said his country was "better placed than any time in the recent past to push the reform process forward" after the Congress-led coalition's election victory in May.
Mr. Singh predicted that the economy would grow by 7 per cent next year if there was no repeat of this year's disappointing monsoon.
"We need to ensure that the financial system can provide the finance needed for our development, and especially for infrastructure development. This opens up a broad agenda for reform," he said.
Some senior bankers consider India's largely state-owned banking system as severely underdeveloped. Kalpana Morparia, the chief executive of banking group JP Morgan in India, described the reach of India's financial system as "appalling", with low numbers of bank account holders and stunted credit extension. She said India had a "long way to go" to reach its goal of 9 per cent economic growth and that it had to take steps to expand its financial sector.
Mention of insurance and pension reforms was omitted in a budget statement shortly after the election, and senior cabinet ministers have said consensus within the ruling coalition is lacking over the immediate reform agenda. The lack of progress has invited some commentators to warn that liberalisers Mr Singh and his close adviser Montek Singh Ahluwalia, deputy chairman of the powerful planning commission, are exceptions in a Congress party dominated by a leftwing rump who have the interests of India's large rural constituency at heart.
Mr Singh, who is widely credited for opening up India's economy in 1991 while finance minister, assured foreign investors that he was undeterred from modernizing India's economy and making it more welcome to foreign capital. He said the $121bn of foreign direct investment in India over the past eight years was "small", given the size of Asia's third-largest economy.
Paolo Martelli, the Asia director of the Washington-based International Finance Corporation, said Mr. Singh's measured approach showed India was beginning to opt for practical steps over ideology. Last week, the government made it mandatory for all profit making, listed, state-run companies to float at least a 10 per cent stake for sale to private investors.