US treasury secretary Timothy Geithner on Monday urged India to open up its financial sector, warning that future growth in the rapidly emerging economy depended on new reforms.
But in key annual talks, Geithner and Indian finance minister Pranab Mukherjee struck a largely conciliatory tone and said that the world's two largest democracies shared common interests.
Geithner said that India was still 'reaping the benefits' of reforms in the 1990s when prime minister Manmohan Singh, then the finance minister, ended decades of socialist-style state planning of the economy.
'But I think India is at the point where future growth will depend on the success in this next wave of reforms,' Geithner told a forum.
'I think in many ways, the Indian economy is outgrowing its financial system,' he said. Geithner said India will have 'huge needs' for new capital to start businesses and that the United States hoped to play a 'significant' role.
India opened up its banking sector since the 1990s, but state-owned institutions — often with archaic infrastructures — still play a dominant role. Much of the 1.2 billion-strong population lacks access to modern banking.
Mukherjee said Singh's government hoped to move ahead on reforms in three key areas — banking, insurance and pension funds — but needed first to bring onboard other political parties.
'The talks to build a consensus are going on and I do hope it will be possible, with the help of parties concerned, (to) be able to get these legislations passed,' Mukherjee said.
The planned start of India's parliament has been delayed due to controversy over the separate issue of an anti-corruption bill.
India has also been considering other controversial reforms including opening up its retail sector. International giants such as Walmart are eager to enter India but face opposition in a country where mom-and-pop stores dominate.
India's economy grew 7.8 per cent in the three months to March, a dip from recent quarters as output and investment are hit by aggressive hikes in interest rates, which are meant to tame inflation.
Mukherjee said that India's annual inflation rate would ideally be between 5.0 and 6.0 per cent but that 'we can deal with' up to 6.5 per cent. Inflation soared to 9.06 per cent in May, aggravating misery for India's millions of poor.
But Geithner, who spent part of his childhood in India, praised the overall direction of the South Asian nation, saying it has pursued a 'more balanced' form of growth.
'India is in some ways a model for how to produce broad-based income growth,' Geithner said. 'It's a good, positive example for the rest of the world.'
The talks with Mukherjee had none of the friction that characterise US ties with China, Asia's other billion-plus nation. While India's growth is largely domestic-driven, China has run up a giant trade surplus with the United States and other developed nations through an economy based on exports.
'I think if you look at this relationship, one of the things that's so encouraging about it is the relative absence of drama,' Geithner said of relations with India.
Geithner welcomed Mukherjee to a dinner on Monday evening. On Tuesday, Mukherjee was to meet Secretary of State Hillary Clinton who is expected to visit India in the near future.
Relations between India and the United States were rocky in the Cold War but have rapidly improved since the 1990s.
Source : New Age
