Indian policymakers have moved "aggressively" to reduce inflation, improve external stability and put India on a course of fiscal consolidation, a top US official has said, praising policy improvements that have strengthened investors' confidence in the country.
Low oil prices have undoubtedly been supportive of growth, but policy improvements have helped strengthen investor confidence in India's macroeconomic stability, said Under Secretary for Treasury Nathan Sheets.
In his remarks before Carnegie Endowment for International Peace - a top US think-tank, which this week launched its India centre in New Delhi - Sheets praised Prime Minister Narendra Modi for identifying infrastructure as a prime objective for growth.
"Through the decisive actions of Prime Minister Modi's government and the Reserve Bank of India, India has strengthened its macroeconomic fundamentals," Sheets said.
"Indian policymakers have moved aggressively to reduce inflation, improve external stability, and put India on a course of fiscal consolidation," he said.
The Modi government took office facing twin deficits and high inflation, in an environment where investors were focused on the vulnerabilities that might arise in emerging markets in the event of a shift in the stance of monetary policy in advanced economies, Sheets said.
"The Modi government's sustained focus on improved governance and the private sector as an engine of growth is an important innovation in the trajectory of policy," Sheets said.
Modi has underscored his determination to make India an easier place to do business, and the US is encouraged by the government's focus on creating conditions for entrepreneurs to grow their businesses and create employment, he added.
"There is a well worn cliche that 'India grows at night' - that is, when the government is closed. One cannot expect to see fundamental changes immediately in a country as complex as India, but India deserves credit for changing the tone at the top," he said.
"We are impressed with the decision of the federal government to provide Indian states with greater authority to shape their economic futures," Sheets said.
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India's more dynamic states - some of which are larger than major emerging market economies - now have greater scope to independently implement policies that improve business conditions, attract investment, and create jobs, he said.
And while it is not a new priority, the government has identified infrastructure as a prime objective for growth, Sheets said.
The budget has included greater financing for infrastructure over the past two years, and the government has cleared stalled projects and funded new initiatives in roads, railways, and other transport, he said.
Infrastructure spending should also help create opportunities and incentives for increased private investment, the Treasury official said.
At the same time, the US official called for speeding up some of the other reforms including those in the banking sector.
Broader banking sector reforms, whether through privatisation, consolidation, governance improvements, removal of priority sector lending requirements, or resolution of non-performing loans, are also needed to help kick-start credit expansion, he said.
A vibrant banking system that supports increased investment and financial inclusion, and, in turn, increased employment, benefits all parts of the Indian economy, he argued.
Observing that low oil prices have provided the perfect opportunity for India to reform its inefficient fossil fuel subsidies, Sheets said consistent with this observation, India has moved in recent years to cut subsidies on diesel and gasoline.
Such efforts help achieve the important goals of supporting the health of public finance, reducing India's external vulnerabilities, and contributing to the G-20's mutually agreed climate priorities, while protecting the poorest, he said.
