India PM upbeat on industry amid challenges

Vajpayee played up India's stability, despite the obstacles played up by the IMF

By CNN's Alex Frew McMillan

NEW DELHI, India -- India's business and industry are in good shape, its prime minister insisted on Wednesday.

That's despite the global slowdown and a downbeat take on India's prospects from the International Monetary Fund.

"It is true that the pace of economic growth has slowed in recent months, but this is temporary," Prime Minister Atal Behari Vajpayee said.

"There is no cause for us to be unduly worried, as our economic fundamentals are strong."

The leaders comments, part of celebrations for India's Independence Day, came a day after the IMF noted plenty of challenges for India.

India is the second-fastest growing economy in Asia, behind China. Both rely on burgeoning demand from their huge home markets, which have insulated them from the global slump.

Investment and business confidence hurt

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But that is changing, as India looks abroad for growth. Its high-tech companies, many based around Bangalore, are feeling the pinch of a U.S. slowdown.

At home, an industrial slowdown in the past three months is exacerbating a farming slump.

The IMF noted problems in India that need addressing in its annual assessment of India's prospects.

India's growth has slowed since the 1990s, to 5.75 percent growth now from almost 6.5 percent the whole second half of that decade.

Investment and business confidence have been hurt, the IMF noted, by problems with India's infrastructure, excess capacity and government policy on import restrictions and interest rates.

Natural disasters like a long-running drought and January's devastating earthquake in Gujarat have also hit hard.

The IMF noted the Gujarat quake caused infrastructure damage as high as 1 percent of national output.

India's government needs to fight to keep down a high level of public debt and trim the deficit, the group said. The power sector needs an overhaul, it suggested.

India's largest overseas investor, Enron Corp., says it wants out of its stake in the $3 billion Dabhol power plant. That debacle is indicative of problems working in India, critics say, which faces a power crisis over the next decade.

Vajpayee highlights stability, WTO

Vajpayee was upbeat in his speech, highlighting the economy's stability.

"Prices are stable. The currency is under control. Our forex reserves have touched a new record," Vajpayee said. "Our granaries are full. We are optimistic about the economy as good monsoon rains indicate good farm output."

There are fears that pulling down trade barriers to meet World Trade Organization standards will hurt India's farmers.

"This fear is unfounded," Vajpayee said. "We are capable of preventing unnecessary imports and can impose import duties or increase existing duties as required."

India is sometimes accused of protectionism and of burdening overseas companies looking to operate there with red tape. It is losing a race with China for overseas investment.

But Vajpayee has launched privatization and market-friendly reforms.

The IMF said the country would benefit from further liberalizing trade, which could see India ship more exports, particularly in textiles, agriculture and services.

The central Reserve Bank of India maintains that its economy will grow at 6.0 to 6.5 percent through 2002.

Economists say it will come in somewhere below 6 percent.

The Indian government has committed to bring its budget deficit to 4.7 percent of national output this fiscal year, from 5.2 percent for the year just ended.

India's stock market was closed Wednesday for Independence Day.