India's economic growth to bounce back from Oct

After months of gloom, the mood in the economy changed on Friday with stocks and rupee showing impressive gains and the government promising to resolve trust problem with the industry.

Upgrade of the Indian stock market by global brokerage house Morgan and Stanley also helped the sentiments.

India's economic growth, which dipped to 9-year low of 6.5 per cent in 2011-12, is expected to rebound from October, Chief Economic Advisor Kaushik Basu said on Friday.

He also said the government was working to remove "trust problems" with the industry.

"We are hopeful that economy is going to bounce back within 4-5 months. I mean its October. Before that I can't realistically say that there will be an improvement, but October onwards," he said.

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He also said that inflation, which is hovering at over 7.5 per cent, will start moderating from September onwards.

Basu further said, "We want to work hand in hand with the industry. There is element of trust problem between industry and government that has happened. Over the last several months we were trying to correct it and we will try to correct this as much as possible in the coming months."

Chairman of Prime Minister's Economic Advisory Council C Rangarajan, now being seen as a key policy maker, assured investors that misconceptions about tax laws would be removed.

Pushed by Prime Minister Manmohan Singh after he took charge of the Finance Ministry, his top advisors, including Planning Commission Deputy Chairman Montek Singh Ahluwalia, and bureaucrats have started working overtime to deal with
economic slowdown and low investor sentiment.

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Basu further said that while economic growth will pick up any way, "if we can together a couple of reforms" things would speed up.

"We have been stressing that we will have to get a couple of reforms in place for which the big stumbling block has been getting all the political parties in the coalition together. So that we have been working," he added.

The stock markets were quick in responding. The BSE sensex went up by 439 points, the highest single-day gain in 2012. Since the change of guards in the Finance Ministry on Tuesday, the key index has advanced by over 550 points.

As foreign funds began to reinvest in Indian equities, the rupee recovered significant ground on Friday improving by 119 paise to a dollar.

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Without specifying about the reforms, Basu just said "these have been part of government agenda for the last 2-3 months".

His comments come amid hectic activity to spur the economy following Prime Minister Manmohan Singh's taking charge of the finance portfolio after Pranab Mukherjee resigned this week to contest presidential election.

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Without specifying the reforms, Basu said "these have been part of government agenda for the last 2-3 months". The industry as well as investors have been critical of the government for not pushing through economic reforms, accusing it of policy paralysis.

Amid opposition from ally Trinamool Congress, the Centre has not been able to press ahead with its decision to open the multi-brand retail sector to foreign direct investment.

The Commerce and Industry Ministry has been working to bring states on board on the issue.

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Also, the government has not been able to move ahead with increasing the FDI limit from the current 26 per cent in the insurance sector.

Earlier, at the function, Basu said while measures are required to arrest the rupee slide, but some depreciation in the domestic currency was an advantage for exporters.