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Prime Minister Manmohan Singh said India must treat measures to boost economic growth as a matter of national security after his allies opposed steps to attract overseas investors.
If India fails to encourage investment and improve the government’s finances, “then it most certainly affects our national security,” Singh, 79, said in his annual Independence Day speech today in New Delhi.
Singh is struggling to salvage his development agenda as gridlock over attempts to open up the economy, graft scandals and elevated inflation deter investment, contributing to the slowest economic growth in almost a decade. Standard & Poor’s and Fitch Ratings have threatened to strip India of its investment grade score unless the government narrows the widest budget deficit among BRIC nations.
“His comments reflect helplessness as the political- economic considerations are not allowing him to implement his ideas,” said Rupa Rege Nitsure, an economist at state-owned Bank of Baroda (BOB) in Mumbai. Still “if you are in power you can’t say you can’t do it, you have to find a way out to take everyone along, otherwise you have to lose the power.”
The rupee has slumped 19 percent against the dollar in the past 12 months making it the worst performer among 11 Asian currencies tracked by Bloomberg. It fell 0.6 percent to 55.6600 yesterday in Mumbai.
The BSE India Sensitive Index (SENSEX) of stocks gained 0.5 percent, while the yield on the 8.15 percent government bond due in June 2022 rose two basis points to 8.22 percent.
Markets are closed today to mark the end of British colonial rule that culminated in the division of the country into India and Pakistan in 1947. Pakistan celebrated its Independence Day yesterday.
“As far as creating an environment within the country for rapid economic growth is concerned, I believe that we are not being able to achieve this because of a lack of political consensus on many issues,” Singh said.
Opposition by his coalition allies such as West Bengal state’s Chief Minister Mamata Banerjee has led to the government foregoing potential investment from overseas insurers, pension funds and retailers including Wal-Mart Stores Inc. (WMT) in the past year.
The $1.8 trillion economy expanded 6.5 percent in the year ended March 31, the slowest pace since 2003. Singh said growth maybe a “little better” than last year, adding that the weakest monsoon in three years may make it difficult to curb price increases.
A report yesterday showed inflation eased to a 32-month low of 6.87 percent in July while remaining the highest in the BRIC group, which also includes Brazil, Russia and China. The rupee’s depreciation and the impact of the deficient rains on crops threaten to boost prices.
Sustained inflation prompted the Reserve Bank of India to leave interest rates unchanged at 8 percent last month. It lowered the benchmark repurchase rate in April by half a percentage point for the first time since 2009.
Forecasters from Goldman Sachs Group Inc. to Citigroup Inc. this month lowered predictions for Indian economic expansion while raising inflation estimates and scaling back expectations for interest-rate reductions by the Reserve Bank. Standard & Poor’s cut India’s credit outlook to negative in April and Fitch followed the move after two months.
“I promise to you today that our government will work hard for India’s rapid economic growth and for shielding the country from the effects of the global economic slowdown,” Oxford University-educated Singh said. “To attract foreign capital, we will have to create confidence at the international level that there are no barriers to investment in India.”
Singh’s administration has faced corruption charges including the 2008 sale of mobile-phone airwaves that the nation’s chief auditor said lacked transparency allowing ineligible bidders to get licenses at low prices. The allegations also led to street protests in Delhi.
Indian anti-corruption campaigner Anna Hazare and supporters held a fast that ended Aug. 3 intended to force the government to speed up passage of laws to counter graft. Police in the national capital this week stopped and detained yoga guru Baba Ramdev and hundreds of his supporters from marching toward parliament to protest corruption.
“We will continue our efforts to bring more transparency and accountability in the work of public servants and to reduce corruption,” Singh said. “But we will also take care that these measures do not result in a situation in which the morale of public functionaries taking decisions in public interest gets affected because of baseless allegations and unnecessary litigation.”
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