Unfazed by critics of his government’s reform measures, Prime Minister Manmohan Singh has said adequate steps were required to put the economy on a sustained high growth path, even as the country awaits decisions on further reforms, particularly relating to the financial sector and taxation.
Addressing the full Planning Commission meeting, he said higher foreign direct investment (FDI) and foreign institutional investors (FIIs) inflow were necessary to finance high current account deficit and justified diesel price hike as an “important step in the right direction”.
The target of 8.2 per cent growth in the 12th Plan period (2012-13 to 2016-17) is possible, provided courageous decisions and risks are taken, Singh said. “...it should be our endeavour to ensure that it materialises. The country deserves no less,” he said at the meeting, which approved draft document for the 12th Plan.
The government on Friday took a slew of reform measures, including allowing foreign direct investment in multi-brand retail and civil aviation. Indian economy grew 5.5. per cent in the first quarter of the current financial year, marginally higher than the 5.3 per cent growth rate it achieved in the previous quarter.
The prime minister emphasised the need for reviving investment in the economy to push growth. "To achieve the target of 8.2 per cent growth we need to revive investment in the economy. The investment environment is therefore critical."
Even as the government took decision on the FDI front yesterday, several other crucial financial sector reforms, be it a bill on hiking FDI in private insurers to 49 per cent from the existing 26 per cent, increasing voting rights of stakeholders in banks and the pension reforms bill, are pending in various stages.
Besides, the Centre has to make a broad consensus with the opposition and states on the goods and services tax, which has already missed three deadlines. And then, the direct taxes code will require many changes as suggested by Parliament’s standing committee.
The 12th Plan has pegged the current account deficit by the end of 2016-17 at 2.9 per cent of the gross domestic product (GDP), which the prime minister said must be financed through FDI and FII inflows.
“This must be financed mainly through FDI and FII flows so that reliance on external debt is limited. I believe we can attract the financing we need, provided our fiscal deficit is seen to be coming under control and the growth momentum is regained,” he said.
India’s current account deficit touched a record 4.2 per cent at the end of the 11th Plan (2011-12).
Fiscal deficit was pegged at 5.1 per cent of GDP in the first year of the current plan — 2012-13 — and in the first four months, over half of this has already been exhausted.
Rating agencies Standard and Poor’s and Fitch have already lowered outlook on India’s sovereign ratings on high fiscal deficit and lack of reforms.
Defending the diesel price, Singh said rational energy pricing was critical and “our energy prices are out of line with world prices”.
On the infrastructure sector, Singh said he would himself review the performance of the infrastructure ministries to ensure speedy implementation of the targets.