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India's Reform Drive To Draw Investment: Geithner

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India's new drive to reform its economy will spur growth in private investment and income, US Treasury Secretary Timothy Geithner said on 9 October, welcoming recent steps that have ended more than a year of policy paralysis in New Delhi.

Sitting beside P. Chidambaram, whose appointment as India's finance minister in August helped trigger the rash of reforms, Geithner said the new policies offered "a very promising path to improving growth outcomes for the Indian economy".

Geithner said this while replying to a question on India's recent decision to open multi-brand retail to foreign investment. The other recent reforms initiative of the government include the decision to raise FDI cap in insurance from 26 to 49 per cent and allowing foreign investment in pension.

The reforms, Geithner said, would lay the foundation for improving investments in the economy and ensure that "gains of those growth and investments are shared more broadly by the citizen of India".

Geithner and US Federal Reserve Chairman Ben Bernanke are on a two-day visit to participate in the 3rd Cabinet Level Meeting of Indo-US Economic and Financial Partnership. Among others, the meeting was also attended by RBI Governor D Subbarao.

Referring to the joint meetings, Chidambaram said: "This forum has given us a much better opportunity to be able to talk to each other and understand each other. In Tuesday's meetings we discussed the global economic and financial developments".

Geithner and Bernanke are scheduled to address business leaders here and visit Mumbai on Wednesday before leaving for Tokyo to attend the International Monetary Fund and World Bank meetings.

India's economic growth has slowed to its lowest in nearly three years and earlier on Tuesday the International Monetary Fund (IMF) sharply cut its projection for GDP growth to 4.9 per cent in 2012, one of the lowest official forecasts so far.

Foreign direct investment into India has fallen 67 per cent since the start of the 2012/13 fiscal year in April after a record high the previous year.

"The recent reforms advanced by Prime Minister (Manmohan) Singh and Minister Chidambaram will help provide a foundation for stronger economic growth, an increase in investment, and more widespread gains in income," Geithner told a news conference with his Indian counterpart in New Delhi.

"We give importance on improving cooperation in bilateral tax matters including restructured tax treaty and implementation of Foreign Account Tax Complaint Act to address offshore tax evasion," he said.

"We have made huge progress on financial developments and reforms... We discussed ways US investors and businesses can best help contribute to India's investment and infrastructure needs," Geithner said.

The meeting also agreed to strengthen cooperation between the two countries on issues relating to illicit finance, including efforts to combat money laundering, terror financing and other financial crimes.

Chidambaram, saying that India was "deeply locked into the global economy", told the news conference that he had raised the US Federal Reserve's new round of quantitative easing with Geithner.

"I raised the concern that it may impact commodity prices and commodity prices may rise," Chidambaram said. "There is also of course a beneficial side. Some of that money may come to India as investments. But we need to balance both the advantages and disadvantages."

Chidambaram added that it was too early to conclude what the impact of this latest round of easing, known as QE3, would be.

Under QE3 the Federal Reserve will buy bonds backed by housing mortgages to lower interest rates and boost the economy.

Geithner said he and Chidambaram discussed how US business could contribute to India's infrastructure and investment needs, and improving coordination on bilateral tax matters.

The reform measures announced by the Indian government over the past month have included raising the price of subsidised fuel to rein in the budget deficit, and opening the retail sector to foreign supermarkets.

The greatest challenge facing Singh, however, is curbing a deficit that a government panel warned last month had taken the country to a "fiscal precipice" and could hit 6.1 per cent of GDP this fiscal year.

QE & India

When asked about impact of quantitative easing (QE) on India, Chidambaram said, "I raised the concern that it may impact commodity prices and commodity prices may rise.

"The US side pointed out that there has been no impact yet on commodity prices and commodity prices may not rise...that we have to wait and see if the QE revises the American economy that is good for us. If US economy grows, it will help us in our exports, it helps us in attracting more capital inflows".