India's Priorities for the Next Phase of Economic Reforms

At a meeting organized by USINDIA Business Council and the Confederation of Indian Industry today (April 21), Deputy Chairman of India's Planning Commission, Mr. Montek Singh Ahluwalia, spoke on India's priorities for the Next Phase of Economic Reforms.

Mr. Ahuluwalia noted that President Bush's recent visit to India was indeed a milestone in Indo-US collaboaration that is emerging in a range of areas including nuclear energy for civilian use. A CEO Group comprising of 10 CEOs each from India and the USA is working on a detailed framework for implementing such collaboration. The recommendations of this Group are keenly awaited and must be monitored for implementation.

Talking about the "real" economy, Mr. Ahuluwalia observed that it grew by 7.8% during 2005 but this rate could decelerate a bit during 2006 to about 7.5%. Over the next five years, if no major macroeconomic mistakes are made and the World economy as a whole does not slow down on account of increase in crude oil prices, India should be able raise the economic growth rate to about 10% in about 5 years from now, with an average of 8-9% for the five-year period.

As for the likely impact of rising oil prices on India's growth scenarios, Mr. Ahuliwalia noted that it was difficult to estimate at this time what would be the likely impact but clearly, the market should help bring about more efficient use of engery including of India's vast reserves are coal.

Emphasizing that progress must be made on all fronts, Mr. Ahuluwalia noted three areas that must receive high priority: 1. Health & Education; 2. Infrastructure; and 3. Agriculture. Agriculture is lagging behind with a growth rate of only about 2% as against the target of 4% over the past several years due to a range of constraints including the lack of investments. Growth in agriculture is critical to reduce rural poverty.

According to Mr. Ahuluwalia, the UPA government has accelerated, over the past two years it has been in power, the progress toward privatization, with emphasis on public-private partnerships, in a range of infrastructure sub-sectors including airports, ports and roads.

Mr. Ahuluwalia expects that the country would would want to invest some $200 billion over the next five years of which as much as $50 billion must come from the private sector on a competitive basis. Where revenue generation may not be adequate to attract the private sector, the government would provide viability gap funding up to say 50% of the project cost.

Already contracts for construction of some 1400 km of roads have already been awarded with GOI grants starting from as low as 8%. In the case of airports in Mumbai and Delhi, the public sector Airport Authority of India will have some 26% share in the modernization deal with the private sector. Telecom sector needs no public sector involvement.

Referring to the fact that some 250 million people still below the poverty level (BPL), Mr. Ahuluwalia observed that overtime their incomes levels must improve as an outcome of growth in urban and rural sectors, it is critically important to improve the delivery of public services such as water, sanitation, health and education.

India is on the go and US investments are welcome... hopefully, one of the formidable obstacles to India's economic growth stroy -- its bureaucracy will respond effectively and efficiently to make this possible. From what we observe, this does not seem to be happening as expeditiously as it should!!