Prime Minister Manmohan Singh on Wednesday signalled a fresh spate of reforms despite an unsettled political environment and asked industrialists to keep faith in him to get the economy going.
He told the annual general meeting of the Confederation of Indian Industry (CII) that the Centre would push the envelope on foreign direct investment (FDI), triggering speculation that the UPA would pack in plenty of policy action before general elections slated for next year.
"We are reviewing the FDI policy comprehensively to see what more can be done," said Singh, who presided over the opening up of the economy as finance minister in the 1990s.
The PM did not specify about changes in the FDI policy that the government was working on, but there were heightened prospects it could likely ease caps on foreign investment in several sectors.
Investors and companies in the pension and insurance sectors, in particular, are keen that a 26% investment cap be lifted."We welcome foreign investment, which has a critical role in bringing in modern technology and globalising our economy. Even as our Indian industry steps out to invest abroad, we must welcome foreign investors coming to India," he said.
A raft of fresh policy pronouncements are likely to soothe frayed nerves of investors who fear the government could be more focused on political risk management rather than reversing the slowdown in the economy, which is set to crash to a decade's low growth of 5% in 2012-13.
The UPA is struggling to balance the demands of unpredictable allies, having recently lost the support of one, Tamil Nadu's DMK, which reduced its strength in Lok Sabha to just above the half-way mark.
Significantly, the PM acknowledged that corruption and government red tape were major roadblocks and coalition politics was challenging, but noted that India had achieved robust economic growth in the past despite these concerns.
"There are indeed many deficiencies. Corruption is a problem. Bureaucratic inertia is a problem. Managing coalitions is not easy. But these problems have not arisen suddenly. They were all there even earlier, when the economy was growing at 8%," he said.
"We are seeing temporary downturn, partly due to global factors. We can get back to 8% growth rate," Singh said, adding that his administration was determined to do everything possible to rein in the fiscal deficit, a measure of how much the government borrows to fund its expenses.
Singh said a debt recast package for state power distribution companies should help nurse them back to health, and flagged an imminent solution to the issue of fuel supply to power projects.
"The ministries are working to reach resolution in a time bound matter. I hope we will see results in the next three weeks," he said.
The PM hinted that he was open to implementing the string of recommendations that the Financial Sector Legislative Reforms Commission has made.
The commission has suggested merging the oversight functions of regulators such as Securities Exchange Board of India, Insurance Regulatory Development Authority, Pension Fund Regulatory and Development Authority and Forward Markets Commission into a single agency, while leaving the banking business regulation under the Reserve Bank of India.