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Slower reform to hurt Indian medium-term growth: report

(Xinhua)

09:50, August 31, 2011

MUMBAI, Aug. 30 (Xinhua) -- Slow progress on economic reforms is creating significant near-term headwinds and might even be lowering the country's medium-term growth potential, said a report by research unit Standard Chartered Tuesday.

Though the government showed some urgency on reforms in June and July, the process was disturbed by recent nationwide anti- corruption movement, which drew the government and the parliament into stalemate.

Thus, enacting economic reforms has again moved down the list of policy priorities.

The report said, India need to be fast-track the reforms in land acquisition, taxation, FDI, subsidies and financial services to achieve the GDP growth rate of 9 percent to 9.5 percent targeted under Indian 12th Five Year Plan (2013-2017).

A third generation of reforms is now urgently needed, particularly to improve institutions like the judiciary, the bureaucracy, corporate governance and the functioning of input markets like land, labor, minerals.

The Indian economy enjoys positive fundamentals in the form of favorable demographics and a good macroeconomic balance, but this must be complemented by prudent policy, warned the report.

"The current period of relatively slow growth and high inflation may be a warning signal that reforms need to be accelerated immediately," said the report.

Delaying these reforms, however, threatens to thwart growth and slower growth in the current inflationary environment threatens to create frustration, further fuelling the anti-corruption movement.

The report said, "In our view, inertia on such reforms is a critical bottleneck to improving the supply side of the economy."

Given the coalition structure of the ruling United Progressive Alliance (UPA), it is often difficult to even forge consensus among the coalition partners and the legislative process can therefore drag on for years.

The government had expected to consider 35 pending bills and introduce 32 new bills during the monsoon session starting from August 1, according to PRS Legislative Research, a private think- tank.

To date, only 10 new bills have been introduced in either of the two houses, and 13 bills have been passed by at least one house.

None of the key pending economic reforms has been tabled, and if anti-corruption agitation continues to affect the normal functioning of the parliament, the situation may not improve by the end of the session, according to the paper.

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