NEW DELHI (Reuters) - India's long-stalled reforms to its financial sector gained momentum on Sunday after Prime Minister Manmohan Singh said he would push through legislative changes, including the insurance sector which foreign players are eyeing.
Investors have been keenly awaiting signs of a pick-up in the pace of economic reforms in India after disappointment that the re-elected Congress party did not speed up the process after May's elections.
"We are also better placed than at any time in the recent past to push the reform process forward," he told the World Economic Forum in Delhi.
Singh also said his government would take steps in the 2010/2011 fiscal year to wind down economic stimulus measures for Asia's third largest economy.
"Some of the reforms needed, especially in insurance, involve legislative changes. We have taken initiatives in this area and will strive to build the political consensus needed for these legislative actions to be completed," Singh said.
He said India needed to develop long-term debt markets, deepen corporate bond markets, strengthen the insurance and pensions sectors, improve futures markets for better price discovery and regulation.
"All these issues will be addressed through gradual but steady progress in financial sector reforms to make the sector more competitive while ensuring an efficient regulatory and oversight system," Singh said.
He also said the government would accelerate the sale of stakes in state-run companies
Reforms in Singh's first 2004-2009 government stalled due to pressure from his communist allies, now out of the ruling coalition after election defeats in May.
"The tone on reforms is very bullish and the government is well positioned to carry out these reforms because of the political mandate," D.K. Joshi, a senior economist at Indian ratings agency Crisil in Mumbai.
The government plans to introduce in parliament by December bills proposing the raising of foreign stake limits in insurers to 49 percent from the present 26 percent and opening up the pension sector to private and foreign firms.
It will also propose a law to cut its holding in top lender State Bank of India to 51 percent.
STIMULUS AND GROWTH
The prime minister said growth in the next fiscal year, assuming a normal monsoon season, was expected to be more than 7.0 percent compared with a 6.5 percent forecast for the 2009/2010 fiscal year. The government has a medium-term target of 9 percent growth per annum, needed to help reduce widespread poverty.
Singh said the Indian economy grew 6.7 percent in 2008/2009 with the help of an economic stimulus package.
"We will take appropriate action next year to wind this down," he said, without giving any details on how the government planned to exit its fiscal stimulus.
Economist Joshi said the timing of the stimulus withdrawal was critical to ensure the economy did not suffer.
"Stimulus is unlikely to be withdrawn before private consumption pick up is ensured. It’s not an on-off switch. They will start withdrawing gradually and I expect some fiscal stimulus being withdrawn in next year's budget," Joshi said.
Finance Minister Pranab Mukherjee said last week that the government would maintain its fiscal stimulus for the time being until uncertainty eased over the impact of poor monsoon rains and the global economic outlook.
The Reserve Bank of India has started what it calls the first phase of the exit from its easy monetary policy, worried about inflationary pressures.
Monday, November 09, 2009
India May Lead G-20 in Stimulus Exit as Singh Signals Wind Back
Nov. 9 (Bloomberg) -- India may be among the first Group of 20 nations to begin winding back fiscal stimulus after Prime Minister Manmohan Singh said faster economic growth would allow the measures to be withdrawn.
“There are clear signs of an upturn in the economy,” Singh told the India Economic Summit organized by the World Economic Forum in New Delhi yesterday. “Like other countries we resorted to a significant stimulus and we will take appropriate action next year to wind this down.”
Singh’s comments are at odds with policy makers from the U.S., Japan, Australia and other Group of 20 nations who said at the weekend it’s too early to withdraw fiscal steps designed to support global recovery. India’s central bank last month began to tighten monetary policy amid concerns that an inflation flare-up may hit the pockets of close to 800 million Indians who live on less than $2 a day.
“Demand in India has picked up and a continuation of stimulus may not be necessary next year,” said Arun Duggal, chairman of Shriram Transport Finance Co. Ltd., the nation’s biggest financier of trucks and buses. “Stimulus should remain in developed countries as their economies are in a more fragile state and could tip backward.”
Singh said India’s economy may grow 6.5 percent in the year ending March 31, constrained by weak monsoon rains that hurt crop production. With better rainfall in the four-month season starting June 2010, the economy may expand over 7 percent in the year commencing April 1, he said.
Wal-Mart
India’s economic strides prompted Wal-Mart Stores Inc., the world’s largest retailer that has a wholesaling venture with the local Bharti Group, to open as many as 40 more “cash & carry” stores in the country. Wal-Mart opened its first Indian wholesale store on May 30, with initial plans to start 10 or 15 more outlets during the next three years.
Tata Steel Ltd., India’s biggest producer of the alloy, reported October sales rose 38 percent, while sales at Bajaj Auto Ltd., the nation’s second-largest motorcycle maker, gained 46 percent during the month.
India began to tighten monetary policy as the central bank forecasts inflation to accelerate to 6.5 percent by March 31 from 1.51 percent. Asset prices have been climbing as well, evidenced by the 68 percent rise in the key Sensitive index on the Bombay Stock Exchange.
The Reserve Bank of India on Oct. 27 ordered lenders to keep more cash in government bonds, raising the statutory liquidity ratio to 25 percent from 24 percent. Governor Duvvuri Subbarao said it was appropriate for the central bank to exit monetary stimulus in a “calibrated way.”
‘Quite Appropriate’
Raghuram Rajan, former chief economist at the International Monetary Fund and now a professor at the University of Chicago, said it was “quite appropriate” for the Indian government to think about winding down fiscal stimulus.
“I am not saying do it today, but do it over the next year and going forward,” Rajan said in New Delhi yesterday.
India’s central bank needs to consider an exit from monetary stimulus as interest-rate policy needs to be conducted with “foresight,” Rajan said. “By the time inflation starts picking up, by the time capacity constraints start showing, its too late to do it with monetary policy.”
China also risks faster inflation and asset bubbles as Asia’s second-biggest economy pursues “excessive growth,” Yao Jingyuan, the statistics bureau’s chief economist, said at a forum in Beijing last week.
Budget Deficit
The Chinese economy is assured of expanding 8 percent in 2009, meeting the government’s target, according to Yao.
India may consider rolling back fiscal stimulus early in the year starting April 1, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said in New Delhi yesterday. This would help reduce a budget deficit estimated to reach a 16- year high of 6.8 percent of gross domestic product this year.
“The worst is behind us though the path of global recovery will be long and uncertain,” Prime Minister Singh said yesterday. “India has been able to face the global economic downturn better than most other countries in the world.”
The world economy may shrink 1.1 percent in 2009, according to IMF estimates. IMF Managing Director Dominique Strauss-Kahn warned Oct. 23 of the risk of a double-dip recession if countries implement exit strategies too soon.
U.S. Treasury Secretary Timothy Geithner told reporters after a meeting of G20 finance ministers in Scotland on Nov. 7 that “it’s too early” to “lean against the recovery.”
Japan, Australia
Japanese Finance Minister Yoshihiko Noda said it’s too soon to start unwinding measures, saying the recovery in his country “still lacks sustainability.” Australian Treasurer Wayne Swan said yesterday government stimulus shouldn’t yet be retracted as winding up the program would threaten jobs and economic recovery.
“The developed countries seem to be very cohesive in thinking that stimulus should continue,” Rana Kapoor, chief executive officer at Mumbai-based Yes Bank Ltd. said in an interview with Bloomberg News yesterday. “Every nation needs to watch out for country-specific conditions and take actions best suited for them, and that’s what India is doing.”
Countries should withdraw stimulus too late rather than too early as the global recovery is likely to be “sluggish,” the IMF said in a report prepared for this weekend’s meeting of G20 officials in St. Andrews, Scotland.
India’s next budget is due to be released in late February 2010 by Finance Minister Pranab Mukherjee, who attended the weekend meeting of G20 officials.
“World demand will pick up only slowly,” Singh said yesterday. “Our strategy therefore must aim at sustaining a high rate of growth on the strength of strong domestic demand.”
“There are clear signs of an upturn in the economy,” Singh told the India Economic Summit organized by the World Economic Forum in New Delhi yesterday. “Like other countries we resorted to a significant stimulus and we will take appropriate action next year to wind this down.”
Singh’s comments are at odds with policy makers from the U.S., Japan, Australia and other Group of 20 nations who said at the weekend it’s too early to withdraw fiscal steps designed to support global recovery. India’s central bank last month began to tighten monetary policy amid concerns that an inflation flare-up may hit the pockets of close to 800 million Indians who live on less than $2 a day.
“Demand in India has picked up and a continuation of stimulus may not be necessary next year,” said Arun Duggal, chairman of Shriram Transport Finance Co. Ltd., the nation’s biggest financier of trucks and buses. “Stimulus should remain in developed countries as their economies are in a more fragile state and could tip backward.”
Singh said India’s economy may grow 6.5 percent in the year ending March 31, constrained by weak monsoon rains that hurt crop production. With better rainfall in the four-month season starting June 2010, the economy may expand over 7 percent in the year commencing April 1, he said.
Wal-Mart
India’s economic strides prompted Wal-Mart Stores Inc., the world’s largest retailer that has a wholesaling venture with the local Bharti Group, to open as many as 40 more “cash & carry” stores in the country. Wal-Mart opened its first Indian wholesale store on May 30, with initial plans to start 10 or 15 more outlets during the next three years.
Tata Steel Ltd., India’s biggest producer of the alloy, reported October sales rose 38 percent, while sales at Bajaj Auto Ltd., the nation’s second-largest motorcycle maker, gained 46 percent during the month.
India began to tighten monetary policy as the central bank forecasts inflation to accelerate to 6.5 percent by March 31 from 1.51 percent. Asset prices have been climbing as well, evidenced by the 68 percent rise in the key Sensitive index on the Bombay Stock Exchange.
The Reserve Bank of India on Oct. 27 ordered lenders to keep more cash in government bonds, raising the statutory liquidity ratio to 25 percent from 24 percent. Governor Duvvuri Subbarao said it was appropriate for the central bank to exit monetary stimulus in a “calibrated way.”
‘Quite Appropriate’
Raghuram Rajan, former chief economist at the International Monetary Fund and now a professor at the University of Chicago, said it was “quite appropriate” for the Indian government to think about winding down fiscal stimulus.
“I am not saying do it today, but do it over the next year and going forward,” Rajan said in New Delhi yesterday.
India’s central bank needs to consider an exit from monetary stimulus as interest-rate policy needs to be conducted with “foresight,” Rajan said. “By the time inflation starts picking up, by the time capacity constraints start showing, its too late to do it with monetary policy.”
China also risks faster inflation and asset bubbles as Asia’s second-biggest economy pursues “excessive growth,” Yao Jingyuan, the statistics bureau’s chief economist, said at a forum in Beijing last week.
Budget Deficit
The Chinese economy is assured of expanding 8 percent in 2009, meeting the government’s target, according to Yao.
India may consider rolling back fiscal stimulus early in the year starting April 1, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said in New Delhi yesterday. This would help reduce a budget deficit estimated to reach a 16- year high of 6.8 percent of gross domestic product this year.
“The worst is behind us though the path of global recovery will be long and uncertain,” Prime Minister Singh said yesterday. “India has been able to face the global economic downturn better than most other countries in the world.”
The world economy may shrink 1.1 percent in 2009, according to IMF estimates. IMF Managing Director Dominique Strauss-Kahn warned Oct. 23 of the risk of a double-dip recession if countries implement exit strategies too soon.
U.S. Treasury Secretary Timothy Geithner told reporters after a meeting of G20 finance ministers in Scotland on Nov. 7 that “it’s too early” to “lean against the recovery.”
Japan, Australia
Japanese Finance Minister Yoshihiko Noda said it’s too soon to start unwinding measures, saying the recovery in his country “still lacks sustainability.” Australian Treasurer Wayne Swan said yesterday government stimulus shouldn’t yet be retracted as winding up the program would threaten jobs and economic recovery.
“The developed countries seem to be very cohesive in thinking that stimulus should continue,” Rana Kapoor, chief executive officer at Mumbai-based Yes Bank Ltd. said in an interview with Bloomberg News yesterday. “Every nation needs to watch out for country-specific conditions and take actions best suited for them, and that’s what India is doing.”
Countries should withdraw stimulus too late rather than too early as the global recovery is likely to be “sluggish,” the IMF said in a report prepared for this weekend’s meeting of G20 officials in St. Andrews, Scotland.
India’s next budget is due to be released in late February 2010 by Finance Minister Pranab Mukherjee, who attended the weekend meeting of G20 officials.
“World demand will pick up only slowly,” Singh said yesterday. “Our strategy therefore must aim at sustaining a high rate of growth on the strength of strong domestic demand.”
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