* Government sets out investor-friendly reform agenda
* Economy in its longest slump for a quarter century
* Ten million people enter the workforce every year
* Forecasts of less rainfall may complicate recovery
(Adds details, background)
By Frank Jack Daniel
NEW DELHI, June 9 India's new government will
use public and private investment to create jobs for the
millions who enter the workforce every year and will make
containing inflation its top priority, President Pranab
Mukherjee told parliament on Monday.
Outlining Prime Minister Narendra Modi's economic plan
following his landslide election victory last month, Mukherjee
said the government would introduce a general sales tax,
encourage foreign investment and speed up approvals for major
business projects. It would also tackle bottlenecks that have
caused food prices to rise more quickly in India than in any
other major economy.
Although Asia's third-largest economy is in its longest
slump for a quarter-century, consumer inflation has been stuck
at an average of nearly 10 percent for the past two years and
was one of the main issues that brought Modi to the helm of the
world's largest democracy.
Ten million people enter the workforce every year as the
largest youth bulge the world has ever seen reaches working age.
The demographic shift may help propel India into the league of
developed nations, but risks causing economic and social
disaster if it is not harnessed effectively.
The anti-inflationary message will be welcomed by central
bank governor Raghuram Rajan, who has made lowering India's
growth-stifling high interest rates contingent on containing
consumer prices. However, dampening prices will not be easy.
Shortages of warehousing, a dependence on monsoon rains and
a complex network of middlemen that leads to price gouging and
irregular supplies of vegetables in mainly vegetarian India is
blamed for much of the volatility. Last August, onion prices
soared by an annual 245 percent.
Forecasts suggesting there will be less rain than normal
this year add to the government's headaches.
Some of the new government's proposals to fix the problems
by clamping down on "hoarders" and building more cold storage
are not new, but hopes now rest on Modi's reputation for
delivering on his promises.
"We are committed to breaking this vicious cycle of high
inflation and high interest rates," Finance Minister Arun
Jaitley said on Monday in a pre-budget speech to state
When Jaitley delivers the budget in early July, he will try
to balance reducing inflation with the need to revive economic
growth from its second year below 5 percent.
Some advisers to Modi and Jaitley have suggested loosening
the purse strings to quickly stimulate the economy. Others
favour slashing the deficit to 3.8 percent of GDP this fiscal
year, even faster than the 4.1 percent goal in the last budget.
Recent comments by Jaitley suggest he will try to walk a
fine line between the two, by cutting subsidies to finance more
spending on infrastructure investments.
In a speech on Sunday, he warned against "temporary
populism" that could create problems in a few years' time, while
on Monday he said economic growth could not be compromised "at
any cost" and called on state governments to be fiscally
"An emphasis on growth by improving the supply side ... in
turn will restrain broad inflation pressure," said Shubhada Rao,
chief economist at Yes Bank in Mumbai.
"The first two years would be to create an enabling
environment for growth to take off," Rao said. "There is no
trade-off between inflation and growth."
India is considering a proposal to raise the price of urea,
the fertiliser most used by its farmers, by at least 10 percent
in order to curb subsidies, government and industry officials
have told Reuters.
The economy grew by 4.7 percent in 2013/14, about half its
pre-crisis rate, dampening India's aspirations to emulate
To get back on track, the government will urgently pursue
reforms to the state-run coal sector and the defence industry to
attract private investment, the president said, while speeding
up project clearances to promote labour intensive manufacturing
ELECTRICITY FOR ALL
From the government side, the attack on inflation will
include public and private investments in agriculture, including
irrigation. If the monsoon falls short, India will consider
giving subsidised diesel, cheaper loans and extra seeds to
farmers, Farm Minister Radha Mohan Singh said.
The government also promised to ensure that every family had
a good home with uninterrupted power supplies by 2022. It will
urgently seek to revamp the creaking railway system, focusing on
high-speed trains, as well as road and airport building.
The speech contained promises to modernise government with
technology and to take broadband connections to every village
within five years, although many of the proposals have also been
made by previous governments.
"We have heard all the right noises, but we have to wait to
see all these intentions translating into action. In other
words, the government has to walk the talk," said A. Prasanna,
an economist with ICICI Securities in Mumbai.
(Additional reporting by Rajesh Kumar Singh in NEW DELHI and
Neha Dasgupta in MUMBAI; Editing by James Macharia and Toby