Washington: Trying to hardsell India, finance minister Pranab Mukherjee on Tuesday assured the US business community that the country’s growth story was intact and it was committed to expediting reforms and further liberalization of the foreign investment regime.
“India’s economic reforms have contributed to the Indian growth story... Overall GDP in 2010-11 has been estimated at 8.5%. The economy is expected to maintain the growth momentum at the same level in 2011-12,” he told a gathering of corporate leaders and policymakers at the ‘US-India Economic and Financial Partnership’ conference here.
The minister further said that discussions were underway to build consensus on “further liberalization of the FDI policy in the retail and defence sectors.”
US businessmen are keenly looking at opening of the multi-brand retail sector to foreign investment and the issue was likely to come up during the bilateral meeting between Mukherjee and US treasury secretary Timothy Geithner.
As part of the major initiative, the minister told the conference, being organized jointly by the Confederation of Indian Industry (CII) and the Brookings Institute, that India has completely liberalized “pricing and payment of technology transfer fee, trademark, and brand name and royalty payments”.
Although the economy is on a high growth path, Mukherjee said the challenge is to sustain GDP expansion in light of global developments and contain domestic inflation, which is hovering at around 9%.
The policy makers, Mukherjee said, “have to be far more alert and prompt with their response and, at the same time, need to explore innovative approaches to sustain growth with stability”.
Refuting the observations that India was going slow on reforms, the minister said it is a continuous process and the UPA government was committed to the process which will lead to the next round of growth.
“The more you reform, there is the need for additional reform,” he said, recalling the steps taken by the Indian government to deepen policy reforms, especially in the financial sector.
“We have recently finalized the guidelines of the debt bonds. We have also decided that...FDI should be more user-friendly. This has been done with the specific intent of enhancing clarity and predictability of our policy,” he added.
Ownership and control, he said, “is now central to the FDI policy and the methodology in this regard has been clearly defined.”
Referring to the issue of inflation, Mukherjee said, “there are problems... Inflationary pressure is putting a serious constraint (on the economy)”.
He further said: “We can have a moderate rate of inflation and at the same time, reasonable developed growth. The monetary and fiscal policy must move in tandem. In India, we are doing so.”
The headline inflation in May was 9.06%, much above the Reserve Bank of India’s comfort level of 5-6%. The recent hike in prices of diesel, kerosene and LPG is likely to put pressure on inflation.
As part of the financial sector reforms, Mukherjee said, the Reserve Bank would be coming out with the guidelines for new banking licences that would allow private sector to set up lending institutions.
The mutual funds, he added, would be allowed to directly attract investments from foreign investors who meet the know your customer (KYC) guidelines. Earlier, this window of investment was available to the Foreign Institutional Investors (FIIs) and their sub-accounts.
The minister also informed the investors about the steps being taken to reform the direct and indirect taxes regime. The Direct Taxes Code (DTC), which seeks to replace the Income Tax Act, 1961 was likely to come into effect from 1 April 2012.
“The new DTC... and Goods and Services Tax (GST) are important measures in the future which will create for India a modern and more efficient tax system”, he added.
The government, the minister further said, intends to double the exports from India to $500 billion in the next three years.
Besides, he added, the government is working on a National Manufacturing Policy with the objective of raising its share in the GDP from 16% to 25% in the next decade.
The issues like land acquisition, environment clearance and resettlement and rehabilitation, he said, “are under continuous policy churn, with a view to de-risking both greenfield and brownfield project development”.