New Delhi: Prime Minister Manmohan Singh said the Indian economy will return to a long-term growth pace of 9% as inflation slows and the government extends a record of market-opening policies.
“We will stay the course,” Singh said in an interview in his office in Parliament House in New Delhi on Wednesday. “We will make India an eminently bankable and creditworthy economy.”
Gross domestic product will increase 7.5% in the fiscal year that ends 31 March, while inflation will cool to between 6% and 7%, he said. The slide in the rupee won’t diminish investor confidence, he added.
The Prime Minister said he expects to succeed in his push to open India’s retail market to foreign companies after assembly elections conclude by the end of March. The BSE benchmark index, the Sensex, had its biggest three-day drop since July 2009 after his administration suspended a cabinet move further opening up India’s retail industry to foreign direct investment (FDI).
Shoppers Stop Ltd, India’s second-largest retailer by market value, gained 1% to Rs 310.6, ending five straight days of losses after Singh’s pledge on opening the industry to foreign investment. Wal-Mart Stores Inc. and Tesco Plc are among the overseas companies that have pushed to enter Asia’s third-largest economy.
The rupee pared losses, and closed at 53.715 in Mumbai on Wednesday. India’s currency has tumbled 16.77% so far this year, the worst performance among 10 major Asian currencies tracked by Bloomberg, hurt by India’s parliamentary gridlock, elevated inflation, a widening budget gap and the weakest economic growth in two years.
Turning to Kingfisher Airlines Ltd, the Indian carrier seeking cash after losses, Singh predicted that banks will support its turnaround efforts.
Kingfisher has pledged assets ranging from its brand to office furniture for bank loans of as much as Rs 6,420 crore.
“In the case of Kingfisher, where government banks have given loans, if they take corrective measures I am sure things should work out,” Singh said. “The Indian banking system has a stake in their well-being. With a government nod, things will turn around.”
Kingfisher is among the new carriers formed in recent years as India relaxed airline licencing laws to allow rivals to state-owned Air India. The change was part of a shift towards free-market policies that Singh, 79, helped to engineer as finance minister in the early 1990s, since when the nation’s economy has more than quadrupled in size.
“We have a strong intention to create a situation where the animal spirits of Indian and overseas businessmen continue,” Singh said in the interview. “There may be zigzags along the way, but the path is the one I set. It is my conviction that it is the only path to reduce the chronic poverty millions still live under.”
The Prime Minister signalled he will revive the proposed retail measure after March, following state elections and when inflation has slowed. That will help bolster public support for the government, he said.
“There was inadequate preparation and some partners in the coalition developed cold feet,” Singh said. “But I can assure you, India remains committed to a system of regulation that is supportive of enterprise and we will do everything to encourage foreign investment.”
The Congress party-led United Progressive Alliance has 263 seats in the lower house of Parliament, nine short of a majority. Two allies, the Trinamool Congress party that’s centred in West Bengal, and the Dravida Munnetra Kazhagam based in Tamil Nadu, have 18 members each.
Both these allies opposed the policy to allow FDI in retail, a measure that Singh and commerce minister Anand Sharma said would create 10 million jobs, and help rein in inflation by reducing the 40% of fruit and vegetables that rot before they can be sold due to a lack of cold-storage facilities.
“There was inadequate preparation. We didn’t have the time, the opposition took advantage” on the retail proposal, Singh said. “Still, I believe the long-term democratic path is the most credible.”
Singh said his job now is to convince political allies.
“It is encouraging to hear, but now what matters is action,” said Leif Eskesen, a Singapore-based economist at HSBC Holdings Plc. “They’re trying to win back some of the lost confidence so the challenge becomes to deliver on that.”
The Prime Minister said some of his administration’s unpopularity at home stems from high inflation. Wholesale prices, India’s benchmark gauge, rose 9.1% in November from a year before, the government reported on Wednesday. India’s inflation is the highest among the BRIC grouping, which includes Brazil, Russia and China.
While international commodity prices have pushed up costs in India, record food production should help ease inflation pressures, said Singh, the only Indian to have held the posts of prime minister, finance minister and central bank governor. Interest rates should be about two percentage points more than inflation to encourage savings, Singh said.
The Reserve Bank of India has raised interest rates 13 times since the start of last year, and governor D. Subbarao has blamed fiscal deficits for contributing to inflation. Singh indicated he agreed.
“We have taken steps on the monetary policy side but we haven’t been as successful in the fiscal side,” Singh said. “You should understand fiscal policy is an acutely political weapon.”