New Delhi: India needs to be cautious about financial sector reforms and focus on reviving the economy through domestic demand, the country’s trade minister said on Sunday, after the Congress-led coalition swept to power in a general election.
Prospects for extensive economic reforms have brightened after the Congress Party won the election with a decisive mandate.
But trade minister Kamal Nath struck a note of caution in the backdrop of the global financial crisis.
“We will have to be cautious about financial sector reforms. Some of the icons of the financial world who were advocating financial reforms have closed shop. We have to be cautious this time,” Kamal Nath told Reuters in a telephone interview.
“In the developed world, governments are giving money to the banks whereas in India the banks are giving money to the government,” Nath said, referring to the Indian banking industry which has been largely unscathed by the global financial crisis.
Plans to raise the foreign investment limit in the insurance sector to 49% from the present 26% and opening up the pension sector to foreign participation have been pending for approval.
The government had introduced legislations to enact these reforms in 2005 but met stiff opposition from communist parties, who provided the coalition government with a majority until withdrawing support last year.
The new government will be largely free from the pressures of regional allies and analysts expect it to push some key reforms to revive growth in Asia’s third largest economy.
“With the global economy in recession and the western economies in disarray, India has to focus on a domestic demand and domestic investment driven economy.”
India’s economy has slowed sharply and is estimated to have grown 6.5% in the just ended 2008-09 fiscal year, its slowest pace in six years as the global slowdown hit harder than expected.
Nath said it was important to conclude trade talks to revive the global economy, and India was willing to play a leadership role.
“We believe that it is even more important to conclude the Doha round as one of the measures to extricate the global economy from going into a tailspin and India is willing to play a leadership role in this,” Nath said.
India is a leading negotiator for emerging nations in the struggling Doha round of talks, and its efforts to protect poor farmers have been one of the stumbling blocks to an agreement.
US trade representative Ron Kirk has held talks with WTO officials at Geneva, and has urged emerging nations such as China, India, Brazil and South Africa to do more to open their markets to secure a new global trade deal.
Last month, WTO director-general Pascal Lamy said in Washington that a renewed push to finish the Doha trade round could not begin until the US was ready to take part.