New Delhi: President Pratibha Patil said on Thursday that the new government would revive economic growth and help millions of poor with higher spending and expansion of social programmes, despite fears of a growing fiscal gap.
Outlining the new Congress-led government’s policies after a resounding election win in May, the President said minority stakes in state-run firms would be sold in a move that could help fund spending.
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The government will also take steps to encourage foreign investment inflows, list shares of state-run firms and infuse more capital in banks to help boost economic growth which is at a six-year low.
“The current financial year is expected to see a slowing down of growth on account of the global recession,” Patil said in an address to Parliament.
“Our immediate priority must be to focus on management of the economy that will counter the effect of the global slowdown,” she added.
The main BSE index fell as much as 1.8% just after the speech, but quickly pared losses to less than 0.05% in mid-trade. Investors were disappointed about the lack of clear reforms in the speech.
“She has not said anything concrete about financial reform. The market was expecting something more specific, but the speech turned out to be a non-event,” Arun Kejriwal, a strategist at research firm KRIS, said.
Maintaining that the government will keep utmost vigil in the area of internal security, the President said a policy of zero-tolerance towards terrorism from whatever source it emanates will be pursued.
“Stern measures to handle insurgency and left wing extremism will be taken. Government has already prepared a detailed plan to address internal security challenges to be implemented in a time-bound manner,” she said.
Patil also promised that the government would continue to “constructively engage” with all groups that abjure violence in Northeast, Jammu and Kashmir and other parts of the country.
She said her government would seek to re-shape relationship with Pakistan depending on the sincerity of its actions to confront groups who launch terrorist attacks against India from its territory.
On the foreign policy front, Patil said the improvement of relations with major powers would be maintained.
“The transformation of our partnership with the United States of America will be taken forward. Our strategic partnership with Russia has grown over the years and we will seek to further consolidate it.”
She said the government will continue the sustained diplomatic efforts which produce qualitative changes in the relations since 2004. The multifaceted partnership with China will be expanded.
On Sri Lanka, Patil said India would support initiative which can lead to a permanent political solutions of the conflict there and ensure that all Sri Lankan communities especially Tamils feel secured and enjoy equal rights so that they can lead a life of dignity and self respect.
Patil said the government would expand programmes like the rural job scheme and enact a food security law to guarantee cheap grains for poor families.
“My government will ensure that the growth process is not only accelerated but also made socially and regionally more inclusive and equitable,” Patil said in a speech given a month ahead of the new government’s first budget.
The Congress’s re-election victory brought hopes that the ruling coalition would be able to move forward with reforms that had been shackled by its former communist allies in the last 2004-2009 government.
But the social schemes that underpin much of the Congress party’s support worry many investors, who would like to see more economic reforms such as privatizations and the opening up of the insurance and pensions sectors.
“Unless the government demonstrates a firm commitment to long term sustainability of fiscal programmes, just talking about various developmental programmes that would add further burden on the fiscal exchequer doesn’t give enough confidence,” said Rupa Rege Nitsure, chief economist at the Bank of Baroda in Mumbai.
The Indian economy grew 5.8% from a year earlier in January-March, matching the upwardly revised rate in the previous quarter. That was still the lowest in four years, but above analysts’ forecast of a 5.2% annual expansion.
The slowdown has seen inflation drop this year. Wholesale price inflation eased to 0.48% in the 12 months to 23 May, from previous week’s level of 0.61%, government data showed on Thursday.
The fiscal deficit for the 2008-09 fiscal year ended 31 March widened to 6.2% of gross domestic product, more than double the initial estimate of 2.5%.
The slowdown has dented revenues and stimulus packages have increased spending significantly, forcing the government to increase its market borrowings and raising speculation that it could use stake sales to fund the gap.
Illustration: Jayachandran / Mint