Indian Prime Minister Manmohan Singh pledged to restore confidence in Asia’s third-largest economy as he resumed control of the finance ministry after growth slowed to the weakest in almost a decade and the rupee slumped.
Singh, 79, urged senior ministry officials to act quickly to revive investor sentiment as he assumed the role vacated this week by Pranab Mukherjee, who resigned to run for president. India needs to address “problems on the tax front,” as well as in the mutual funds and insurance industries, he said at a meeting in New Delhi yesterday.
“At the current juncture, we are passing through challenging times economically,” Singh said in the meeting, according to a statement on the government’s website. “We need to work to get the economy going again and restart the India growth story.”
Singh will need to call on his experience in turning around the economy as finance chief in the 1990s, when India was on the brink of defaulting on some of its overseas debt. He now faces a budget deficit requiring record borrowing, a paralysis in policy making that has hurt efforts to spur investment and a faltering global recovery, which have pushed the rupee to an unprecedented low and put the country’s investment-grade rating at risk.
“Don’t expect a big change yet,” said Ramya Suryanarayanan, a Singapore-based economist at DBS Group Holdings Ltd. “If until now there were bottlenecks and policy logjams it’s not going to miraculously disappear.”
The nation’s currency, which touched a record low of 57.3275 per dollar on June 22, declined 0.2 percent to 57.135 yesterday. It is down 21 percent in the past year, the worst slide among major Asian currencies. The tumble has stoked inflation by making imports costlier.
Indian stock futures gained today on speculation Singh will take steps to bolster investor confidence and as better-than-estimated U.S. data eased concerns over global economic growth and lifted Asian equities. SGX S&P CNX Nifty Index futures for June delivery, which expire today, rose 0.3 percent to 5,153 at 10:53 a.m. in Singapore.
Elsewhere in Asia, Japan reported retail sales rose more than economists forecast in May, a sign that consumer spending will help sustain a rebound in the world’s third-largest economy. Australia’s new home sales rose 0.7 percent in May from April, the Housing Industry Association said.
Germany will release June jobless data and economists predict unemployment rose by 3,000 this month, a Bloomberg survey showed. The U.K. will release first-quarter gross domestic product figures, which are forecast to show the economy contracted 0.3 percent, unchanged from May’s estimates. The European Commission will also publish updated estimates on euro-area consumer confidence for June.
U.S. jobless claims for the week ended June 23, and the latest estimates for first-quarter GDP are also due.
In other comments on his Twitter Inc. account yesterday, Singh said India needs to “reverse the climate of pessimism,” adding that the immediate emphasis of the government is to manage the balance of payments and boost institutional flows into India.
The government’s recent setbacks include the suspension in December of plans to allow foreign companies such as Wal-Mart Stores Inc. to open supermarkets after an ally of the ruling coalition objected. India has also foregone investment in the pension and insurance industries in recent months.
The government, which subsidizes items from diesel to fertilizers, projects record borrowing of 5.69 trillion rupees ($100 billion) in the year through March 2013. It aims to narrow the budget gap to 5.1 percent of GDP this fiscal year, from 5.76 percent in 2011-2012.
“Talk is cheap, but what he’s able to do will really matter,” said Rajeev Malik, a senior economist at CLSA Asia-Pacific Markets in Singapore. “The litmus test is going to be the potential fuel-price hikes. Also, what they do with FDI-related policies, especially retail. And making sure that project implementation is picking up in infrastructure, and creating a more enabling environment for business.”
Swedish furniture retailer IKEA last week eased some of the gloom, saying it wants to open stores in India and may invest as much as 1.5 billion euros ($1.9 billion). Coca-Cola Co. said this week the company and its local partners plan to spend $5 billion in the country by 2020.
Still, Singh needs political support to succeed this time around, said Malik at CLSA.
“Sure, it gives him an opportunity to do at least a few things, but political support has to be there,” Malik said. “Fiscal slippage has been a key problem area and the cause of multiple macro imbalances. However, not all of these corrective things are in his control.”
Mukherjee, the ruling Congress party’s nominee for the presidential poll in July, quit to take part in the election. Singh will head the finance ministry until Mukherjee’s successor is appointed, according to Pankaj Pachauri, communications adviser to the prime minister’s office.
The prime minister’s decision to refrain from appointing a successor immediately implies he “wants to keep the portfolio with himself for some time to push stalled reforms and lift the slowing economy in order to boost confidence” said Satish Misra, an analyst at the New Delhi-based Observer Research Foundation.
Singh headed the finance ministry for five years from 1991. In his first two months in the job, he devalued the rupee, tackled government monopolies, cut import tariffs and tax rates, and let foreign companies take majority stakes in sectors including automobiles and pharmaceuticals.
Liberalization spurred faster growth, including an 8.4 percent expansion in the 12 months ended March 2011, before a gridlock in policy making contributed to a slowdown to 5.3 percent last quarter from a year earlier, a nine-year low.
Inflation accelerated to 7.55 percent in May, and the central bank signaled this month that price pressures are crimping scope to cut interest rates.
Fitch Ratings and Standard & Poor’s have said they may strip Asia’s third-largest economy of its investment-grade rating. The nation has struggled to pare spending on subsidies.
Mukherjee’s resignation may lead to a cabinet reshuffle as Singh tries to revitalize his development agenda to cut poverty.
Home Minister Palaniappan Chidambaram, Commerce Minister Anand Sharma, Deputy Chairman of the Planning Commission Montek Singh Ahluwalia, Chairman of the Prime Minister’s Economic Advisory Council Chakravarthy Rangarajan and Rural Development Minister Jairam Ramesh are all probable candidates to replace Mukherjee, Business Standard newspaper reported June 15.