India's PM urges tough economic reform

A "BUSINESS as usual" attitude won't drag India from its economic mire, the Prime Minister has warned in a sombre speech to the nation's leaders in New Delhi.

Manmohan Singh, the architect of India's first tranche of economic liberalisation in the 1990s, said India should introduce a GST soon, immediately begin cuts to costly subsidies on fuel and energy, and reduce corruption and waste in government welfare programs.

"The current economic situation is difficult. The continuing crisis in the global economy . . . combined with some domestic constraints, has meant that our growth has also slowed down," Dr Singh told the National Development Council, India's major economic planning body that includes the leaders of all 28 states.

"Our first priority must be to reverse this slowdown. We cannot change the global economy, but we can do something about the domestic constraints which have contributed to the downturn."

Dr Singh said the world's largest democracy needed major economic reforms, and rapidly, in order to lift its poorest citizens from poverty.

An estimated 400 million Indians still live on less than a dollar a day.

"We must remember that we are still a low-income country. We need 20 years of rapid growth to bring it to middle-income level. The journey is long and requires hard work."

India's growth rate for the fiscal year ending in March is expected to be 5.7 to 5.9 per cent, the slowest since 2002-03.

According to government and expert opinion, the country needs to grow at least 8 per cent to find jobs for the massive youth bulge now entering employment.

The government's 12th five-year plan (2012-17) predicts 8 per cent growth, revised down from 8.2 per cent. But the PM cautioned this might still be beyond the country's abilities. "I must emphasise that achieving a target of 8 per cent growth, following less than 6 per cent in the first year, is still an ambitious target.

"[And] the high growth scenario will definitely not materialise if we follow a 'business as usual' policy."

Dr Singh said early implementation of a GST was critical for the economy, as was reducing subsidies on petrol and gas, which cost the treasury millions.

"Immediate adjustment of prices to close the gap is not feasible, I realise this, but some phased price adjustment is necessary," he said.

The Prime Minister said government welfare payments, such as health benefits or the Mahatma Gandhi National Rural Employment Guarantee Act - which guarantees 100 days work a year to poor Indians - would soon be paid out by direct money transfer, which would reduce delays and the rampant corruption that blight them now.

Rural Indians remain among the country's poorest people. Agriculture now contributes only 15 per cent of India's GDP, but half of the population still relies on farming as the principal source of income.

"Agriculture is an area of critical concern . . . what happens in agriculture is . . . critical for the success of inclusiveness," he said.

"We need to move people out of agriculture by giving them gainful employment in the non-agricultural sector."

Before the global financial crisis, India had enjoyed a decade of strong growth, Dr Singh said, but its benefits weren't enjoyed by all. Groups such as religious minorities, castes, tribes and women were still disadvantaged.

"These groups lag behind the rest of the population in key socio-economic indicators. Fortunately the gaps are closing, but the pace at which this is happening is not satisfactory and certainly does not match expectations."