MUMBAI, May 20 – The newly elected Congress-led government needs to move swiftly and decisively to restore blistering economic growth in India, even if that means higher inflation, industry leaders here say.
As Prime Minister Manmohan Singh prepares for a second term of office, business executives said they hoped the government would announce a fresh fiscal stimulus and the central bank would further lower interest rates.
The centre-left Congress won a massive vote of confidence Monday from the stock market with a record surge in share prices adding sheen to the party\’s resounding election victory last weekend.
"As an immediate action, we hope for a further cut in short-term interest rates by at least 50 basis points," said Chandrajit Banerjee, director-general of the country\’s leading industry body, the Confederation of Indian Industry.
"This would create an impetus for growth," he told AFP.
Government authorities estimate growth for the fiscal year just ended in March slipped to about 6.5 percent due to the global financial crisis, from nine percent in the previous 12-month period.
They expect growth to decelerate to around six percent this year, the slowest pace in seven years.
"We are getting indications the government is working on specific reforms to support exports," said Ankit Miglani, director at Uttam Galva Steels, the country\’s largest exporter of steel to the United States.
India\’s exports slid by a third in March, their sixth straight monthly fall, as the global financial slump gouged demand in the country\’s main US and European markets.
"The government is making signals to boost growth," Miglani added, referring to statements by former commerce minister Kamal Nath that the government would aim to get growth back to at least eight percent.
"Inflation may be sacrificed to boost growth," Miglani said.
Inflation is hovering at close to zero but economists expect it to rise to around five to 5.5 percent by the end of the current fiscal year to March 2010, fuelled by aggressive interest rate cuts and government stimulus schemes that will mean more cash sloshing around the economy.
"We are confident that this government will perform as strings will not be pulled in different directions," added Sanjay Kothari, member of Gem and Jewellery Export Promotion Council.
The communists, who had supported the previous Congress government in parliament for most of the last term, had put the brakes on economic reforms such as opening up the financial sector to foreign investment.
But in the latest elections, Congress won a far larger number of seats, eliminating their need to rely on the Left.
"Reforms got a very clear mandate from these elections," the Confederation of Industry\’s Banerjee said, though many analysts expect the government to go slow as it seeks to build a national consensus first on reform.
India\’s software lobby group National Association of Software and Services Companies (NASSCOM) said it was seeking tax breaks to enhance the flagship industry\’s competitiveness.
Earnings of India\’s top export-oriented software giants have fallen in the last two quarters as US-based clients cut technology spending as a result of the worldwide economic crisis.