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A Tough Act To Follow?

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The time for words may be over but hope springs eternal. Addressing the plenary session of the eventh Summit of the G-20 countries in Mexixo, Prime Minister Manmohan Singh said his government is determined to take "tough" decisions, including on controlling subsidies, to reverse the expansion of the fiscal deficit. He expressed confidence of bringing back the rhythm of high growth of 8-9 per cent per annum. Back home, the stockmarket responded well to the PM's remarks as the BSE Sensex rallied 154 points.

The Prime Minister addressed some critical issues relating to the slowdown in India's economy in his address. He also announced a $10 billion contribution to the IMF's additional $430 billion financial firewall to help the debt-wracked 17-nation Euro Zone. A show of 'we can' and so what if rating agencies find India's investment outlook negative?

His voice found an echo in India as the RBI Governor insisted the government should reduce spending and not just raise taxes for fiscal consolidation (Read: Cut Spending).

Under attack for not reducing interest rates on Monday's policy review, Reserve Bank Governor D Subbarao said inflation at current levels is unacceptable and monetary tightening is required to ensure sustainable growth.

In Mexico, the Prime Minister said the public in the country is "impatient" for a return to high growth and faster jobs creation.

"We are taking steps to revive investor sentiment. We are determined to create an environment that would boost investor sentiment and promote an atmosphere conducive to enterprise and creativity," he added.

Reflecting slowdown in the economy and erosion of investor confidence, foreign direct investment (FDI) in India has declined by 41 per cent to $1.85 billion in April.

The country had attracted FDI worth $3.12 billion in April, 2011.

Finance Minister Pranab Mukherjee said the government is taking steps to improve inflow of foreign investment and the impact of the initiatives will become visible after some time. (Read: Govt Taking Steps)

"In certain areas we have to take appropriate measures. We have already started taking appropriate measures...These have started yielding results. But its impact will take some time," he said while responding to queries on the issues raised by global rating agency Fitch.

Attributing the decline to global and domestic economic problems, the experts have suggested that the government should push some big-ticket reform initiatives to restore confidence of global investors.

"The government should take important and key reforms immediately like allowing FDI in multi-brand retail and permitting foreign airlines to buy stake in domestic carriers.

These moves would help in increasing FDI inflows in the country," Ficci Secretary General Rajiv Kumar said.

The decline in FDI comes at a time when India's economic growth slipped to 9-year low of 6.5 per cent in 2011-12. The growth in the January-March quarter was merely 5.3 per cent.

"Like other countries, we too allowed the fiscal deficit to expand after 2008 to impart a stimulus. We are now focussing on reversing the expansion. This will require tough decisions, including on controlling subsidies, which we are determined to take," Singh told the galaxy of world leaders including US President Barack Obama.

India is targeting a fiscal deficit of 5.1 per cent of GDP for this fiscal year. But a higher subsidy bill and lower tax revenue have resulted in its fiscal projections for 2011-12 go awry. The fiscal deficit was 5.8 per cent in 2011-12, wider than the initial target of 4.6 per cent.

The country's growth slowed to a nine-year low of 5.3 per cent in the fourth quarter of 2011-12.

Transparent Policies
Singh said the policies will be transparent, stable and designed to provide a level playing field to both domestic and foreign investors.

Singh told the world leaders that India is focussing heavily on infrastructure investment and has set ambitious targets to keep this on track and also put in place a problem resolution mechanism to overcome implementation bottlenecks.

The prime minister stressed that there should be a focus on investment in infrastructure as a means of stimulating global growth has found resonance at the G-20 deliberations with both developing and developed countries responding positively.

In the context of controlling subsidies, Singh referred to a landmark effort underway in India to provide unique identity numbers for all residents with capture of biometric data.

The G20 summiteers were told that this massive database covering over a billion people will facilitate delivery of a whole range of financial and other services, through effective targeting and reduced linkages in subsidy schemes.

India Announces $10 Bn For Debt-wracked Euro Zone
India on Tuesday announced a $10 billion contribution to the IMF's additional $430 billion financial firewall to help the debt-wracked 17-nation eurozone so that the faltering world economy is protected against the spread of any financial contagion.

The announcement of the contribution was made by India's Prime Minister Manmohan Singh in his address at the Plenary Session of the seventh summit of the Group of developed and developing countries(G-20) in this Mexican resort town against the backdrop of growing calls to nations to increase contributions to the International Monetary Fund(IMF) for the bailout fund.

India's contribution along with pledges by other member countries of the five-nation BRICS bloc has helped increase IMF's resources and give a boost to the $430 billion fund being used as a firewall to support struggling eurozone economies.

"The International Monetary Fund has a critical supportive role to play in stabilising the Eurozone. All members must help the Fund to play this role, I am happy to announce that India has decided to contribute $10 billion to the IMF's additional firewall of $430 billion," he told the world leaders at the seventh summit of the grouping which accounts for 80 per cent the world's GDP.

(With Agencies)