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Resource centre on India's rural distress
 
 

India Focuses on Education and Health by Heather Timmons


Prime Minister Manmohan Singh pledged Sunday to spend more on health care and education and make it easier for foreign investors to participate in India’s $1.2 trillion economy, one of the fastest growing in the world.

At a World Economic Forum meeting in New Delhi, Mr. Singh said that public sector spending on health care would more than double to 2.5 percent of gross domestic product, and education spending would increase to 6 percent. The government “should have done a lot more in both areas” in recent years, he said.

Under Mr. Singh, India’s Congress government, which was re-elected this year, has promised to reduce poverty, bolster economic growth and fix some of the systemic problems that hamper India’s aspirations to become an economic superpower. Its relatively insular economy and financial services sector helped the country escape the brunt of the global economic crisis, and the challenge now is to capitalize on that advantage.

The financial crisis disrupted economies around the world, but “clearly the worst is behind us,” Mr. Singh said Sunday. Yet the path to sustainable recovery will probably be long and uncertain, he warned. Although India’s monsoon rains this year were low, stifling agricultural production, the domestic economy is expected to grow at 6.5 percent, Mr. Singh said. Next year, if the monsoons are normal, the economy will grow 7 percent, he predicted.

Over the medium term, the government has set a target of 8 to 9 percent annual economic growth a year, Mr. Singh said. Because the domestic savings rate is about 35 percent, that is an “eminently feasible target,” he said.

Private investors have a “large and growing role to play in achieving our target,” he continued, calling foreign investors in particular a “welcome participant in all of our efforts.”

Foreigners have invested $120 billion in India since the 2001-2002 fiscal year, Mr. Singh said, but that was not enough. He promised to make India an even more attractive target for foreigners by “rationalizing and simplifying” investment guidelines and processes.

The country needs to strengthen its financial system by developing a long-term debt market, deepening the corporate bond market and changing laws to make the futures and insurance markets more robust, Mr. Singh said, promising “decisive change” in the coming months and years.

India is seeking tens of billions from foreign investors for infrastructure projects like fixing the country’s roads and expanding its ports, and it has opened up government owned companies to increased private investment.

The Cabinet Committee on Economic Affairs made it mandatory Thursday for government-owned companies that had earned money in the past three years to list on India’s stock exchanges. Government companies that are already listed should increase their public holding to 10 percent, the committee said. The government is expected to raise about 200 billion rupees, or $4.3 billion, from the divestments.

The central bank could start to raise interest rates next year, Mr. Singh said Sunday. The Reserve Bank of India cut key lending rates six times in the past 12 months to keep the economy moving despite the global recession.

Now some economists say that inflation could strike.

The government resorted to “significant stimulus” to fight the downturn, Mr. Singh said, and will “take appropriate action next year to wind this down.”

Mr. Singh also pledged to work with other countries toward a “positive” outcome of the United Nations conference on climate change in Copenhagen next month but hinted that India would once again refuse to agree to a cap on emissions.