India govt sets out investor-friendly reform agenda

NEW DELHI, June 9 (Reuters): India's new government will pursue a broad economic reform agenda focused on job creation through public and private investment that makes containing inflation its top priority, President Pranab Mukherjee told parliament on Monday.
The president told lawmakers elected in Prime Minister Narendra Modi's landslide victory last month that the government would introduce a general sales tax, encourage foreign investment and speed up approvals for major business projects. It would also tackle bottlenecks that make India's food inflation the highest among major economies.
The anti-inflationary message will be welcomed by central bank governor Raghuram Rajan, who has made lowering India's growth-stifling high interest rates contingent on containing consumer prices.
Asia's third-largest economy is in its longest slump for a quarter century, growing by 4.7 per cent in 2013/14 and marking the second straight year of sub-5 per cent growth that has dampened aspirations to emulate China's rise.
The government will "urgently pursue" reforms to the state-run coal sector and the defence industry to attract private investment, the president said, while speeding up project clearances to promote labour intensive manufacturing industries.
Ten million people enter the workforce every year as the largest youth bulge the world has ever seen reaches working age. The demographic shift may help propel India into the league of developed nations, but risks economic and social disaster if it is not harnessed effectively.
"An emphasis on growth by improving the supply side ... in turn will restrain broad inflation pressure," said Shubhada Rao, Chief Economist at Yes Bank in Mumbai.
"The first two years would be to create an enabling environment for growth to take off," Rao said. "There is no trade-off between inflation and growth."