* FDI slowdown and impact on balance of payments a major worry
* Persistent anti-inflation monetary stance needed
* Calls for deepening financial sector reforms
(Adds details, analyst comments)
By Manoj Kumar and Nigam Prusty
NEW DELHI, Feb 25 A sharp slowdown in India's
foreign direct investments and any moderation in exports could
further strain the balance of payments, the government's chief
economic adviser warned on Friday.
The finance ministry's annual economic survey, released
ahead of the federal budget on Monday, said policymakers must
maintain a consistent anti-inflationary monetary stance, given
stubbornly high inflation and strong growth.
The ministry also said farm output must be increased to
combat high food prices.
"Inflation is clearly the dominant concern," the report
said, adding that New Delhi needs policies to help reverse a
fall in foreign direct investment (FDI) inflows.
India is on track in the current fiscal year that ends in
March to attract $27.6 billion in FDI inflows, down from $35.6
billion in the previous year, a senior official said on Monday.
The survey, authored by the finance ministry's chief
economic adviser, said policymakers should keep their options
open if capital flows affect the economy adversely.
A key policy prescription in the survey would allow
foreign direct investment in multi-product retail in a phased
manner, with the aim to reduce the price gap between the farm
and the consumer, although it gave little detail.
Global retailers such as Wal-Mart have been
thwarted in their hope to open stores in the massive Indian
market, as opening multi-brand retail to more foreign investment
is opposed by key allies of the ruling Congress party as well as
small shop owners.
The finance ministry also warned that the real exchange
rate has been on the rise and may have contributed to the large
current account deficit, which has been financed in large part
by "footloose capital."
Policymakers have expressed worry about India's
current account deficit , which widened in the
September quarter to a record $15.8 billion, as booming demand
sucked in imports and service sector exports saw tepid global
"While the economy has entered into a super-cycle of benign
growth trajectory of 8-10 percent, there are also headwinds like
inflation, current account deficit, fiscal deficit and quality
of capital inflows," said Brinda Jagirdar, chief economist at
State Bank of India.
The survey, a precursor to Monday's federal budget, said
reforms were needed to streamline both land acquisition for
industry and environmental clearances for infrastructure
projects to sustain growth momentum.
The survey also made a case for deepening reforms in
the banking sector and corporate bond markets.
Battered by a slew of corruption scandals, India's
Congress-led government faces a battle to contain stubbornly
high inflation, pushed up by food prices, without hurting
economic growth amid signs a possible slowdown in industrial
For economic survey report highlights For
preview of Monday's budget
Rising oil prices, exacerbated by unrest in Libya, are also
Despite the challenges, the survey sees growth in the
current fiscal year at 8.6 percent, rising to roughly 9 percent
in the year ending in March 2012.
Its fiscal deficit is seen at 4.8 percent of GDP for
the current year ending March, below the budgeted of 5.5
percent, thanks in part to $23 billion in telecom licence
The survey forecast a deficit of 4.8 percent for the
next fiscal year, a level some economists regard as
Early this month, Standard Chartered cut its fiscal
year 2012 GDP growth forecast to 8.1 percent from 8.8 percent,
citing recent signs of slowdown, especially in the capex
(Writing by Abhijit Neogy, Additional reporting by Rajesh
Kumar Singh, Suvashree Dey Choudhury and Swati Bhat; Editing by
Alistair Scrutton, Tony Munroe and Ramya Venugopal)