A security guard stands on watch inside the Volkswagen India plant in Chakan, India, in March.

India may aim to raise as much as 250 billion rupees (US$5.2 billion) a year from asset sales and ease overseas investment limits in insurance and retail after manufacturing growth slowed and the economy faltered.

Reforms have become imperative in an economy where manufacturing growth has been slowing, the government said Thursday. Selling shares in state-controlled companies including NHPC Ltd., India’s largest producer of electricity from water, and allowing overseas firms to own larger stakes in insurers and retailers may narrow the fiscal deficit and restore economic growth to almost 9 percent.

Prime Minister Manmohan Singh’s administration will consider completing the sale of 5 percent to 10 percent equity stakes in profitable state-run companies that haven’t been classified as “navratnas,” and auction loss-making firms, according to the report.

The “navratnas,” or nine jewels, are large public sector companies that have been given autonomy in certain areas such as joint ventures and mergers and acquisitions to enable them to become globally competitive. The original navratnas have expanded to 18, the government said last month.

Food retailing

The government should also consider allowing foreign investment in cooking retailing in the next few months, and raise the overseas holding cap in insurers to 49 percent, it said. Currently, overseas investment is allowed only in single-brand retail stores and is limited to 26 percent in insurers.

“There is a perception among financial and other investors that government has been slow on policy reforms in the past five years,” the report said Thursday. “As long as economic growth was above trend, these apprehensions did not matter.”

Narrowing the budget deficit is “critical” to keep interest rates low and to restore growth rates, and Singh’s government should make a commitment to return the gap to 3 percent of gross domestic product “at the earliest,” according to the report. The budget shortfall stood at 6.2 percent of GDP in the year ended March 31.

Survey target

Singh, who began his second term in May, would set a record for selling state assets if he meets the survey’s target. After a privatization wave that netted a record $6 billion between 1999 and 2004 by a government led by Singh’s main opponents, sales slumped during the prime minister’s first term as Communist allies thwarted his plans.

The government should also seek to raise the overseas investment limit in defense companies to 49 percent from 26 percent, and even lift it to 100 percent in some cases to reduce dependence on imports, according to the survey.

The survey also recommended that India allow an increase in the overseas investment limit in banks and greater participation in the financial system by foreign lenders, along with tighter regulation. Voting rights in banks should be aligned with equity holdings and Indians should be allowed to hold bigger stakes in state-run banks, it said.

Source: Bloomberg