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India PM says reforms steps 'only the beginning'

Penny MacRae
Indian Prime Minister Manmohan Singh in New Delhi on September 15, 2012. He says his government's new reforms to spur the economy are "only the beginning."

India's premier Manmohan Singh said Saturday his government's new reforms to spur the economy were "only the beginning", while lashing out at "excessive pessimism" that he said is hurting growth.

Singh's scandal-scarred government has unleashed a blitz of reforms to further open up sectors such as retail, insurance and aviation to foreign investment as it seeks to kickstart growth before facing voters in polls due in early 2014.

"The steps we have taken are only the beginning of a process to revive our economy and take it back to its trend growth rate of eight to nine percent," Singh told an audience of corporate leaders in New Delhi.

"Our government has acted to reverse the cycle of negative expectations and stimulate investment," he said.

But "excessive pessimism at home" about the country's economic prospects and a "less supportive" global environment have made the Congress-led government's task of reviving the flagging economy much tougher, he added.

India's growth slipped to a near-decade low of 6.5 percent in the last fiscal year and is expected to fall even lower this year to around 5.5 percent.

While much of the world would envy such a growth rate, the pace is not enough for India, which says it needs close to double-digit expansion to substantially reduce crushing poverty.

Singh said the government had taken tough decisions to rekindle investor enthusiasm and seek to rein in India's ballooning fiscal deficit that has brought warnings of a downgrade from global ratings agencies.

"Some of the decisions we have taken were politically difficult," Singh said.

Opposition parties that have been fighting the reforms are "either ignorant or constrained by outdated ideologies", he said.

Last week the fragile minority coalition government succeeded in winning approval for its move to allow in foreign supermarkets -- a flagship of its renewed reform agenda -- despite fierce political opposition.

Singh said the government will also press ahead with more selloffs of stakes in state-run firms after the sale earlier in the week of a 10 percent holding in mining firm NMDC raised $1.1 billion as it struggles to narrow the deficit.

The government is hoping to exploit a domestic stock market rally in which share prices have risen by around 25 this year even with the sluggish economy.

But efforts to reinvigorate the economy are constrained by high inflation, which even though cooled to a 10-month low of 7.24 percent last month, remains "unacceptably high", Singh said.

Inflation "needs to be brought down to no more than five-to-six percent per annum", Singh said, ahead of a meeting this Tuesday of a meeting of the central bank's monetary policy-setting committee.

Economists say inflation is still too high for the bank to cut rates this month to bolster growth but add that if it falls further, policymakers may reduce borrowing costs early in the new year.

The bank has "opened the door for policy easing if inflation begins to ease", said HSBC economist Leif Eskesen.