Remain bullish on long-term growth, Pranab tells FIIs

With high inflation and rising oil prices casting a shadow on India’s growth story, Finance Minister Pranab Mukherjee on Tuesday asked institutional investors, including foreign entities, to remain bullish on the long-term growth trajectory driven by next generation reforms.

In a meeting with investors, Mukherjee asked them not to be bothered by short-term statistics and assured them of building a consensus on a hike on foreign direct investment (FDI) by private insurers to 49 per cent from the existing 26 per cent and opening up the multi-brand retail sector for foreign investment.

Mukherjee said next generation financial sector reforms like widening and deepening of securities markets, reducing transaction cost in the markets, liberalising foreign capital inflows and strengthening regulatory architecture have already been initiated, people who attended the meeting told Business Standard.

The finance minister admitted that economic growth could be around 8.5 per cent this financial year, the same level as of 2010-11, but lower than the projected nine per cent by the Economic Survey. He, however, exuded confidence that fiscal deficit would be reined in at 4.6 per cent of GDP, as revenue collections are not likely to see a decline.

Mukherjee, however, said it would be difficult to accurately estimate the burden on the government from fuel subsidy in view of the volatility in global crude prices. Nonetheless, he assured them that if there was any additional requirement for the subsidy, funds would be committed with least impact on fiscal deficit. Bolstered by reports of a normal monsoon, the finance minister said inflation is likely to moderate in the coming months. Wholesale price inflation was down to 8.66 per cent in April from 9.04 in previous months.

The finance minister explained to 30 leading institutional investors that disinvestment programmes last year was not pursued fully due to additional revenue generation from spectrum allocations for 3G and broadband wireless access. Representatives from Principal MF, Kotak Group, GMO Singapore PTE, Lloyd George, Birla Life Insurance, Fidelity, HDFC MF, Morgan Stanley, ICICI Prudential MF, Reliance MF, Franklin Templeton and SBI MF, among others, attended the meeting.

The finance minister also told FIIs that they should convince BJP-ruled states to back the Centre’s initiative to pass the Constitution Amendment Bill that would help roll out Goods and Services Tax.

The government mobilised around Rs 23,000 crore last financial year against the target of Rs 40,000 crore. He said it would be premature to reach a conclusion on meeting the disinvestment target this financial year as it was early days. The government had raised Rs 1,145 crore from PFC disinvestment last month.

FIIs have invested $3.2 billion in Indian securities market on net basis in 2011 so far. However, most of it — over $3 billion — came into debt instruments. Their cautious sentiments have taken away 2,000 points or 10 per cent from Sensex since January. On Tuesday, the Sensex was up 75.51 points or 0.41 per cent to 18495.62 points.