Washington, June 28: Finance Minister Pranab Mukherjee on Monday strongly refuted observations by US think-tanks, the government and industry that India has gone slow on economic reforms and insisted that a series of reforms are in the process, which will lead to the next round of growth. However, Mukherjee observed that reforms in India require political consensus, which is being worked upon by the government led by Prime Minister Manmohan Singh. Reform is a continuous process and the UPA government is committed to it.
“The more you reform, there is the need for additional reform,” he argued addressing a meeting of India and American corporate leaders, policy makers and think-tank members at a conference on the ‘US-India Economic and Financial Partnership' jointly organised by the Confederation of Indian Industry (CII) and Brookings Institute, a Washington-based think-tank.
“We have taken certain steps, as I was talking of structural reforms,” said Mukherjee, who arrived in Washington on Monday leading a high-powered Indian delegation for the second India-US Economic and Financial Partnership discussions being held here.
“We have recently finalised the guidelines of the debt bonds. We have also decided that... FDI to be more user-friendly (and) all prior regulation and guidelines have been consolidated into one comprehensive document which is reviewed every six months. This has been done with the specific intent of enhancing clarity and predictability of our FDI policy to foreign investors,” he said. “Ownership and control is now central to the FDI policy and the methodology in this regard has been clearly defined.
Discussions are currently underway to build consensus on further liberalisation of the FDI policy,” he said. Certain important legislations for reform of banking regulations, enhancement of FDI in the insurance sector and pension fund regulation were introduced in the last session of Parliament, he said, hoping that it would be possible to get these legislations cleared expeditiously by Parliament. “But I was mentioning to Secretary Geithner that in our system, we ought to have the consensus from the other parties, because we do not have the simple majority to get the laws passed in our Parliament.
“The talks to develop a consensus are going on and I do hope it will be possible. With the help of the parties concerned, we would be able to get these legislations passed,” Mukherjee said.
In the areas of taxations, New Delhi, he said, has undertaken two major reforms.“In direct taxes, it is under the scrutiny of the parliamentary standing committee and I do hope that from the next financial year, we will be able to operationalise it,” he noted.
“With respect of another reform, Goods and Services Tax, (on) which we are trying to evolve a consensus, because of our constitutional practice, these are areas of taxation which the Constitution has authorised the federal and provincial governments to enforce taxes on certain items. Unless the states agree and a constitutional amendment is introduced and passed, this is not possible to make it effective,” he said. And for that constitutional amendment, the central government requires a special majority and concurrence of 50 per cent of the provincial government.
“Therefore, the consensus among the major political parties is absolutely necessary. It would be a very important reform if we are able to get this legislation passed. “We are working on that and if we are in a position to get this legislation passed, to my mind it will be a major reform,” he said.
Mukherjee said inflation poses a major challenge to the Indian economy and projected that the rate of inflation is going to be more than 6.5 per cent this year. “There are problems (with the Indian economy) and one of the major problems is inflation,” Mukherjee said. “Inflationary pressure is putting a serious constraint,” said the Finance Minister, who arrived in Washington on Monday leading a high-powered Indian delegation for the second India-US Economic and Financial Partnership discussions being held here.
“We do not believe, in theory, one is to be dispensed for the other. Yes, 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,” he said.
“Therefore, in short term, I would like to emphasis that in India, the growth potential is there. The rate of saving and rate of investment is reasonably high. The various structural reforms which we have undertaken and which will come in course of time, that will ensure that investment-friendly environment which can attract investment from various parts of the world,” he said. Referring to concerns being expressed by various quarters about undesirable blips in economic data from time to time, Mukherjee said, “Sometimes questions have been raised, particularly looking at a figure in a short campus of time. (For example) Whether FII in the current financial year is slowing down. In every year, the first quarter's FII investment slows down, particularly the equity. But in the later part of the years, it makes up. This is not in one year, but year after year. Therefore, we need not be unnecessarily overly worried.”
Inflation, Mukherjee reiterated, is an important constraint to India's economic growth, which the government has to tackle.“To be very frank, what shall be acceptable and what can be a tolerable level of inflation is very difficult to define. But in our economy, we feel that if we can keep the inflationary pressure within 5 to 6 per cent, it could be ideal, but we can live with 6 to 6.5 per cent,” he said. “This year I do hope it will be a little more, not because of near supply constraints on the agricultural front, which was one of the major reasons for inflationary pressure of the previous and current year, which we have substantially addressed by taking appropriate measures,” he said.
“But the international commodity prices, including food and fuel, is causing severe constraints,” he said. “The food prices have started coming down. We have taken steps very recently. And have reduced subsidy burden by adjusting the price of oil and also providing relief to the consumers by doing away with central taxes and appealing to provincial governments to reduce their taxes on petroleum and petroleum products. I do have hope that it will have some impact. But this is going to be a major problem and it would have its impact on the overall growth scenario,” Mukherjee said.
Mukherjee said the G-20 is playing a significant role not only in the revival of the world economy, but also in jointly addressing the common problems being faced by the world, such as money laundering or sustainable growth.
“We do recognise without taking into account development component, merely addressing the current crisis by proving finances and resources would not be possible unless development is taken into (account) as an important ingredient in the decision-making process of the G-20, which has been recognised in the Seoul summit,” he said. The free and frank discussion which takes place at G-20 meetings is another important aspect of the G-20, he said. “In most of the issues, we arrive at a consensus and no decision is taken by votes or by division.
This practice should be encouraged in all other forums,” Mukherjee said. It is because of the effective leadership and intervention of the G-20 that FATA has taken successful steps to unearth black money and to prevent money laundering and to counter terror finance, he observed.
“I think G-20 is doing well and we should encourage it to play more effective role in the coming years, unless we achieve sustainable growth,” he added.
“G-20 is doing a great job,” US Treasury Secretary Geithner agreed. “One thing we have done in the last two years is to build a consensus on reforms of the governing structures of international financial institutions, more balanced, more legitimate,” he said.
“We all recognise that for there to be better economic apparatus for the world as a whole, we have to find a way for countries to work together more carefully to make sure they take into consideration the external effects in their policies in making judgments together,” Geithner said. PTI