By Rajkumar Ray and Manoj Kumar
India's president said on Thursday that the new government would revive economic growth and help millions of poor with higher spending and expansion of social programmes, despite fears of a growing fiscal gap.
Outlining the new Congress-led government's policies after a resounding election win in May, Pratibha Patil said minority stakes in state-run firms would be sold in a move that could help fund spending.
The government will also take steps to encourage foreign investment inflows, list shares of state-run firms and infuse more capital in banks to help boost economic growth which is at a six-year low.
"The current financial year is expected to see a slowing down of growth on account of the global recession," Patil said in an address to parliament.
"Our immediate priority must be to focus on management of the economy that will counter the effect of the global slowdown," she added."
The main BSE share index extended early losses to 1.8 percent just after the speech, but climbed to finish up 0.93 percent at its highest close in nine months, bolstered by hopes the government would revive growth by boosting investment and pushing reforms.
"Some signs of new policy measures to lift growth are there, but meeting the expectations of the market would be difficult for the government," said K.K. Mital, head of portfolio management services at Globe Capital.
POPULIST SCHEMES
Patil said the government would expand programmes such as the rural job scheme and enact a food security law to guarantee cheap grains for poor families, in a nod to millions of poor Indians that helped the Congress party to election victory in May.
"My government will ensure that the growth process is not only accelerated but also made socially and regionally more inclusive and equitable," Patil said in a speech given a month ahead of the new government's first budget.
The Congress's re-election victory brought hopes that the ruling coalition would be able to move forward with reforms that had been shackled by its former communist allies in the last 2004-2009 government.
But the social schemes that underpin much of the Congress party's support worry many investors, who would like to see more economic reforms such as privatisations and the opening up of the insurance and pension sectors.
"Unless the government demonstrates a firm commitment to long term sustainability of fiscal programmes, just talking about various developmental programmes that would add further burden on the fiscal exchequer doesn't give enough confidence," said Rupa Rege Nitsure, chief economist at the Bank of Baroda in Mumbai.
The Indian economy grew 5.8 percent from a year earlier in January-March, matching the upwardly revised rate in the previous quarter. That was still the lowest in four years, but above analysts' forecasts of 5.2 percent annual expansion.
The slowdown has seen inflation drop this year. Wholesale price inflation eased to 0.48 percent in the 12 months to May 23, from the previous week's level of 0.61 percent, government data showed on Thursday.
The fiscal deficit for the 2008/09 fiscal year ended March 31 widened to 6.2 percent of gross domestic product, more than double the initial estimate of 2.5 percent.
