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CII urges government not to blink on reforms

The Indian government needs to press on with tough economic reforms if it wants to have a chance of meeting the central bank's growth forecast this financial year, the head of a top business body said on Wednesday.

"If it is business as usual, which means that further reforms are ignored, it can at best give us a 5.5 per cent growth which is not good enough," Sanjeev Goenka, president of the Confederation of Indian Industry, told Reuters in an interview.

Despite definite signs that the economy is slowing, the central Reserve Bank of India is sticking to its forecast of 6.0-6.5 per cent GDP growth in 2000-01 (April-March).

The Indian economy, one of the fastest growing in the world, has lost steam recently because of high oil prices, drought and other natural disasters, increased competition due to trade liberalisation, a weak rupee, and weakening world growth.

"Slower growth should not be a reason to shy further away from tough reforms. Reforms cannot wait," said Goenka, who heads the powerful industry lobby group with over 4,100 members.

"Indeed, 2001-02 will see greatest competitive challenges in the last eleven years. Margins will take a beating and we will see radical restructuring across all industries," he said.

He predicted if the government opted for "big bang" reforms and moved faster to upgrade its creaking infrastructure India could clock more than 6.6 per cent in 2001-02, which would then set the stage for sustained 7-8 per cent growth by 2004-05.

Prime Minister Atal Behari Vajpayee's Bharatiya Janata Party-led coalition government has been stalling on economic reforms such as revamping archaic labour laws and privatisation.

The government shied away from these tough reforms out of fear of losing mass support at a time when it was already under pressure following accusations of an arms scandal, a stock market rigging scandal and losses incurred by a state-run mutual fund.

FOCUS ON INFRASTRUCTURE

Goenka said the government should focus its attention on infrastructure development as a short term measure to boost demand and growth, because the lack of infrastructure was a huge competitive disadvantage for Indian industry.

The current slowdown, which has hit the United States, Japan and the European Union was also a "cause for concern".

"This implies pressure on consumer spending, postponing of corporate expenditure, lower demand for investments, greater competition and severe pressure on margins," he said.

It has already hit Indian exports, which grew a mere 1.76 per cent in the first quarter of 2001-02 largely due to the downturn in Japan and the United States -- India's main markets.

The CII president played down hopes of a monsoon-led recovery in the agriculture sector. Policymakers are pinning their hopes on the monsoon rains to bolster rural demand and reverse the economic slowdown.

"Even though the fortunes of agriculture will once again depend on the monsoons, it doesn't look as though the sector is going to stage a smart recovery," Goenka said.

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