Manmohan Singh says Modi govt failing to boost economic investment

MUMBAI (Reuters) - In a rare interview India's former prime minister Manmohan Singh criticised his successor Narendra Modi's government for failing to take advantage of lower commodity prices to propel economic growth and an inconsistent policy towards neighbour Pakistan.

Speaking to the India Today, Singh said the Modi government should use India's improving fiscal balances to raise investment in the economy and raise credit availability to businesses.

"In the hands of a purposeful government, this could be an opportunity to step up investment in the economy in a big way," said Singh, who left office after a 2014 election loss.

Singh, who is regarded as the architect of India's economic reforms that led to years of rapid growth, said the government has not been able to capitalise on falling oil and commodity prices that have lowered India's import bill.

Sharp falls in import prices have reduced India's trade deficit raising hopes that it will boost economic activity.

India's turbocharged growth figures have been criticised by many analysts for giving too flattering a view of Asia's third-largest economy.

Indian economy posted growth of 7.3 percent in the quarter through December, but consumer inflation inched up unexpectedly last month and capital goods production, a proxy for investments, fell nearly 20 percent in December.

Modi's finance minister Arun Jaitley is expected to present a credible budget on February 29, people involved in the process say, yet the government might break its budget deficit targets to stimulate demand.

Singh said Modi should focus on improving relations with neighbouring countries, adding that the government has not succeeded at making headway with arch-rival Pakistan who India accuses of supporting insurgents across their shared border.

"Certainly relations with major powers have improved... But I would say that the real test of foreign policy is in the handling of your neighbours. And here I would say that the Modi government's handling of Pakistan is inconsistent," 83-year old Singh told the magazine.

"It has been one step forward, two steps back."

India and Pakistan have fought three wars since independence and partition in 1947, two over Kashmir. Their disputed frontier is one of the world's most heavily militarised regions. Border clashes and incursions pose a constant risk of escalation

Singh, an Oxbridge-educated economist as finance minister in 1991 was credited for reforms that opened up the Indian economy, but his legacy is marred by his final term as PM marked by corruption scandals, ballooning inflation and skidding economic growth.

(Reporting by Himank Sharma; Editing by Michael Perry)