Indian PM vows to attract more foreign investment

Ben Sheppard
AFP News

Indian Premier Manmohan Singh on Wednesday used his Independence Day speech to promise to improve conditions for foreign investment in the country after a sharp downturn in economic growth.

India recorded near double-digit expansion over much of the last decade but the economy grew by just 5.3 percent in the January-March quarter, a rate that threatens to stall its transformation since the early 1990s.

Singh said that the government would "leave no stone unturned to encourage investment", and vowed to increase spending on much-needed infrastructure projects such as roads, railways and the electricity network.

"To attract foreign capital, we will have to create confidence at the international level that there are no barriers to investment in India," Singh said, signalling that further liberalisation reforms were in the pipeline.

Foreign companies keen to tap into India's emerging consumer market have poured into the country, but have often struggled to thrive amid government policy U-turns, endemic corruption and red tape.

Foreign direct investment into India collapsed by 65 percent year-on-year in the April-June quarter, according to the Reserve Bank of India.

The ruling Congress party is already concerned about general elections due in 2014, and the prime minister has launched a campaign to revive its flagging fortunes since P. Chidambaram was named as finance minister two weeks ago.

Singh, delivering the annual Independence Day address at the Red Fort in Delhi, said that "a difficult phase" for the world economy had merged with India's domestic situation to hinder growth.

"We cannot do much about the conditions that prevail outside our country," he said. "But we must make every effort to resolve the problems inside our country so that our economic growth (is)... again speeded up."

He added that growth must be obtained while controlling inflation, which is likely to be stoked by this year's poor monsoon -- though the headline rate unexpectedly dropped to 6.87 percent in July from 7.25 percent in June.

Singh, 79, who is expected to step down at the end of his term, repeated his forecast that annual GDP growth would exceed last year's rate of 6.5 percent, a prediction dismissed by opposition leaders and many independent economists.

Ratings agency Moody's last week scaled down its growth outlook for Asia's third largest economy to 5.5 percent in the fiscal year ending March 2013.

The Congress-led government elected in 2009 has struggled to push legislation through parliament due to constant protests by opposition parties and even its coalition partners.

Singh blamed the lack of political consensus for the failure to create rapid economic growth and said that the problem was damaging stability in India.

"If we do not increase the pace of the country's economic growth (and) take steps to encourage new investment in the economy... then it most certainly affects our national security," he said.

Among moves that have spooked foreign firms was the announcement followed by the sudden withdrawal of reforms allowing retail giants such as Wal-Mart into India, as well as a retrospective tax bill for Vodafone.

The premier's speech, marking the end of British rule in 1947, also included a vow to provide electricity to all households within five years and proposals for a new law to end the "repulsive practice" of manual removal of human waste.

The main opposition Bharatiya Janata Party (BJP) dismissed the speech as lacklustre and uninspiring.

Police said no one was injured when four roadside bombs exploded in the northeastern state of Manipur, which has seen decades of separatist violence.