Reforms needed to return India to high growth - govt

By Surojit Gupta and Tony Munroe

NEW DELHI (Reuters) - India could see growth of around 7 percent this year and more in coming years if it makes sweeping reforms including removal of fuel subsidies, and speeds infrastructure development, a government report said on Thursday.

The economic survey, presented to parliament by the finance ministry, also said inflation was no longer a worry and called for an urgent return to the targeted fiscal deficit of 3 percent.

Its release comes days before the new government unveils its budget on Monday for the fiscal year ending March 2010. The government is widely expected to expand both the budget deficit and its borrowing to support economic growth.

Analysts said any actual reforms would likely be gradual and Thursday's report should be treated as a signal of intent. Subsidies on gasoline, diesel and fertiliser, for example, have long been a drag on India's finances but are vote winners.

"Saying it in the Economic Survey is one thing but the political reality is different," said N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy.

India's fiscal deficit ballooned to 6.2 percent in 2008-09 as the government unleashed stimulus spending to insulate against the global downturn, but Thursday's survey included tough talk.

"It is heartening to see that the survey has seriously raised concerns on fiscal consolidation and gives confidence that the budget will see a good trigger for disinvestment and rationalization of fuel and fertilisers," said Rupa Rege Nitsure, chief economist at Bank of Baroda.

The partially convertible rupee was little changed at 47.85/86 after the survey, while bond yields fell as investors hoped government borrowing will not be as heavy as earlier expected. The BSE share index fell 1 percent before returning to positive territory.