Financial sector reforms likely to progress

NEW DELHI: Financial sector reforms may soon be put on the fast track. Finance minister P Chidambaram told world business leaders on Sunday that in the next 16 months, the government might be able to make some progress on this unfinished agenda.

“The financial sector is the heart of the economy, but we have not been able to push those reforms. That's a disappointment, but I still think we have 16 months. We might be able to make some progress,” he said.

Addressing a diverse gathering of business leaders from around the world at the India Economic Summit, the minister said financial sector reforms is one area of disappointment in an otherwise praiseworthy reform track record of the ruling coalition.

The government could not make much progress on reforming sectors like banking, insurance, pension and capital markets, Mr Chidambaram said in response to a question. He emphasised on the government’s commitment to work in the area.

The minister said in his earlier address on ‘the shifting power equation’ between rich and progressing nations that financial resources is key to economic power.

“India and China together contribute more than 60% of the world’s growth. But that does not mean that economic power has shifted to developing nations from developed nations. It only means that developing nations have built capacities to compete with the developed world. Notwithstanding India’s and China’s growth, the world’s most influential centres for financial services are in the developed world, especially in London and New York, which drive their growth. Those who control financial resources, will control the world”, the minister said.

It is to be noted that the finance ministry is considering the proposals made by a technical committee on how to make Mumbai a global financial nerve centre. The minister’s concern comes in the wake of certain key bills to reform the sector getting delayed for want of political consensus.

The plan to raise the limit of foreign ownership in local insurance companies from the present 26% is pending with a panel of ministers. The banking reforms bill, too, is languishing. Only a small portion of the bill on the ‘statutory liquidity ratio’ was separately passed since there is no political consensus on the overall bill.

While the Centre and most state governments have agreed to allow their employees to invest part of their retirement money in the stock market under a new pension scheme, a bill to give statutory powers to the pension regulator is yet to get Parliament’s clearance.

Another area of disappointment for the government is the gap be-tween “outlays and outcomes. The government has expanded outlays but has used the tried and failed system of delivery.

“We have not ex-perimented with alternative institutions of delivery. While outlays have increased four times in education and two times in health be-tween 2004-’05 and 2007-’08, I have some reservations on their out-comes. If state governments assure me of outcomes, I am happy to provide greater outlays”, the minister said.

Mr Chidambaram expressed satisfaction on the over 8% growth for the last four years. "I am proud of this and I hope this trend would continue. Now the debate is not on growth, but on inclusive growth," he said. The minister also said that investment as a percentage of the gross domestic product stood at 35.1% in 2006-07.

In the first half of this fiscal, it was more than 30%. Mr Chidambaram said that he expects this year, too, it would be at above-35% level. Growth would be more pronounced if it touches 40%, the minister added. The summit was organised by the World Economic Forum and the confederation of Indian industries (CII).