India’s new pro-market finance minister on Monday pledged to takes steps to restore foreign investors’ faith in Asia’s third-largest economy and “restart the growth engine”.
P. Chidambaram, in his first policy statement since taking over last week, said India’s stuttering economy faced a string of challenges from stubborn inflation to high interest rates and a spiralling fiscal deficit. But “with sound policies, good governance and effective implementation, we will be able to overcome these challenges,” said Chidambaram, now in his third stint as finance minister.
“The key to restart the growth engine is to attract more investment — both from domestic investors and foreign investors,” he said. India’s once-booming economy grew just 5.3 percent between January and March — its slowest annual quarterly expansion in nine years.
He said there was still “enormous goodwill” globally for India, despite anger over recent government moves seen as hostile to foreign investors, and said most people were keeping “faith with the India growth story”.
His predecessor, Pranab Mukherjee, who now occupies the ceremonial role of president, annoyed foreign investors in his March budget with sweeping anti-tax evasion rules — some of them retroactive.
Chidambaram promised to review the tax measures to find “fair” solutions, adding that India wanted a “non-adversarial” tax regime.
He said the government would aim to raise the level of investment to 38 percent of GDP, from 32 percent last year. He added it was key to remove any “distrust” in investors’ minds since investment “is an act of faith”.
Attracting foreign investment is required to upgrade India’s dilapidated airports, roads, ports and other infrastructure in order to ease bottlenecks and spur growth.
Chidambaram took over the portfolio on the same day as India suffered a massive power outage that highlighted its creaking infrastructure.
The Congress-led government, Chidambaram said, would take steps to attract investments in mutual funds and insurance and bring India’s fiscal consolidation process back on track.
He also said that with the threat of India’s third drought in a decade looming, the left-leaning government must provide relief to parched farm areas and that the “fiscal correction” would have to be fairly shared.
He also called for the cooperation of parliament, which has been paralysed over long-stalled economic reforms to open up India’s still inward-looking economy.
Chidambaram, who has been keen on reforming the heavily regulated and state-controlled economy — a legacy of socialist thinking in post-independence India —- will have the job of boosting the economy ahead of the 2014 elections.
He indicated he wanted lower interest rates to spur investment and consumption. The central bank has said it wants inflation to come down from elevated levels of over seven percent before cutting borrowing costs.
“Sometimes it is necessary to take carefully calibrated risks,” said Chidambaram, whose periods as finance minister included the time from 2004 to 2008 when India’s growth was near double-digits.
