NEW DELHI (Reuters) - India needs to take “difficult” decisions to achieve 9 percent economic growth, but a lack of national consensus is making it tough to push through economic reforms, Prime Minister Manmohan Singh said on Saturday.
Singh, who as a finance minister in 1991 opened up the Indian economy, met members of the Planning Commission at a time when India’s growth story is passing through a not-very-happy chapter.
Analysts have warned lack of structural reforms are holding back the country’s economic growth and could weigh down future expansion.
“Given the uncertainties in the global economy, and the challenges in the domestic economy even a 9 percent target is feasible only if we can take some difficult decisions,” Singh told members of India’s top economic planning body.
India’s economy, which grew by 8.5 percent in the last fiscal year that ended in March, is showing unmistakable signs of slowdown on high inflation, rising cost of capital and mounting uncertainties in global economy.
In July, manufacturing activity expanded at its weakest pace in 20 months, while car sales contracted for the first time in nearly three years.
Although policymakers are projecting an annual economic expansion of at least 8 percent in the current fiscal year, private economists are predicting the growth rate to dip below that.
While domestic policy uncertainty amid a slew of corruption scandals is seen preventing firms from adding capacity, 11 rate hikes by the central bank to control inflation is hurting consumer demand.
Analysts suggest speeding up pending policy reforms as a prescription for boosting investment that could add capacity and ease bottlenecks that drive inflation and crimp growth.
Political wrangling within the ruling Congress-led coalition and resistance from the main opposition Bharatiya Janata Party have stuck several key reforms, including implementation of a nationwide goods and services tax and liberalising foreign investment in retail and financial sectors.
“Second generation reforms are essential. But they are also lot more difficult and require a broad-based national consensus,” Singh later told reporters.
“The effort has to be to create a climate of opinion whereby all political parties would unite in national interest to push forward the reform agenda.”
The second generation reforms are meant to further open up the financial sector for foreign investments and make stringent labour and land acquisition laws investor friendly.
Additional reporting by Nigam Prusty; editing by James Jukwey