Caution on financial sector reforms is key: Kamal Nath

Caution on financial sector reforms is key: Kamal Nath

Kamal Nath

Prospects for extensive economic reforms have brightened after the Congress Party won the election with a decisive mandate. But Trade Minister Kamal Nath struck a note of caution in the backdrop of the global financial crisis.

“We will have to be cautious about financial sector reforms. Some of the icons of the financial world who were advocating financial reforms have closed shop. We have to be cautious this time,” Kamal Nath told Reuters in an interview.

“In the developed world, governments are giving money to the banks whereas in India the banks are giving money to the government,” Nath said, referring to the Indian banking industry which has been largely unscathed by the global financial crisis. Plans to raise the foreign investment limit in the insurance sector to 49 per cent from the present 26 per cent and opening up the pension sector to foreign participation have been pending for approval. The government had introduced legislations to enact these reforms in 2005 but met stiff opposition from communist parties, who provided the coalition government with a majority until withdrawing support last year.

“With the global economy in recession and the western economies in disarray, India has to focus on a domestic demand and domestic investment driven economy.” India’s economy has slowed sharply and is estimated to have grown 6.5 percent in the just ended 2008/09 fiscal year, its slowest pace in six years as the global slowdown hit harder than expected. Nath said it was important to conclude trade talks to revive the global economy, and India was willing to play a leadership role.

“We believe that it is even more important to conclude the Doha round as one of the measures to extricate the global economy from going into a tailspin and India is willing to play a leadership role in this,” Nath said.