The PM, who chaired a meeting of the Planning Commission to discuss India's 12th Five-Year Plan, also said that the hike in diesel prices effected on Thursday was a step in the right direction, saying rational energy pricing was critical.
India's fuel prices, he pointed out, were out of line with the world. Petrol has been deregulated, but the government still subsidizes diesel, cooking gas and kerosene, incurring huge losses. Allies and the opposition have kept political pressure up on the government not to reduce these subsidies and have demanded a rollback of the latest hike.
The Prime Minister also warned that that a prolonged policy logjam could slow economic growth to 5 per cent. "If this continues for any length of time, vicious cycles begin to set in and growth could easily collapse to about 5 percent per annum with poor outcomes on inclusion," he said.
Mamata Banerjee has put the government on notice, issuing a 72-hour deadline for the fuel price hike and a move to allow foreign direct investment, or FDI, in multi-brand retail to be rolled back. If that is not done, she says, her Trinamool Congress might withdraw support.
Today, a little after the PM spoke, Bahujan Samaj Party leader Mayawati too slammed the Congress-led government for taking "decisions against the common man". The BSP leader, who has provided support to the Centre at critical moments, said: "We condemn the implementation of FDI (in multi-brand retail)... We had opposed it earlier and we will oppose it now as well...we will decide on October 10 whether we will support the UPA from outside or not."
The PM, as he justified the government's reform measures today, did not seem in rollback mode. Fiscal deficit was too high and had to be reined in, the Prime Minister said, adding that FDI was important to reduce debt.
Pressing for "not just GDP growth, but sustainable, inclusive growth", Dr Singh said the government was targeting an 8.2 per cent growth in the 12th Plan period, lower than originally projected, but that some realistic downgrade was expected given the global economic situation. To reach growth targets, he said, infrastructure development was critical; the government, he said, was aiming at $1 trillion investment in the core sector. He added that he would personally review the performance of infrastructure ministries.
The Prime Minister steered clear of announcing any spending cuts for the 2013 fiscal year.
The economy grew at 7.9 per cent despite the global economic turbulence in 2008 and 2011. The PM said that was commendable given that there were two global economic crises in those five years. Poverty declined, while agriculture grew by 3.3 per cent during the 11th Plan period, he pointed out.
The short-term problems of the economy would persist, he said, but added that it would not affect the medium-term prospects of the economy.
Yesterday, the government decided to allow 51 per cent FDI in multi-brand retail, the controversial move that has Mamata Banerjee and Mayawati saying that they are reviewing support to the UPA government. It also relaxed FDI ruled in the aviation sector allowing international airlines to invest in domestic carriers.
The government also approved foreign investment of up to 49 per cent in the power trading exchanges in the country, and also hiked the cap on foreign investment in the broadcast sector to 74 per cent.
While opposition parties have expectedly attacked the government on its reform measures, industry, which had been worried and severely critical of the UPA's unwillingness to push policy, has cheered the wake-up.
T.V. Mohandas Pai, formerly head of human resources at IT firm Infosys, said “dil mange more” after the government relaxed FDI norms, while Anand Mahindra, chairman and managing director of automobile maker Mahindra and Mahindra, said “the government has moved from a famine on reforms to a feast”.
The markets also cheered the government’s move, with the BSE Sensex jumping 443 points or 2.5 per cent to close at 18,441, while the broader Nifty advanced 142 points to 5,578.