India's booming economy is likely to keep growing at a fast pace in the coming five years, the government said Thursday, but poor infrastructure and outdated regulations will keep it from achieving an even higher rate of growth.
The economy is expected to grow by 8.7 percent this fiscal year ending March 31, slowing from the 9.6 percent growth rate of the 2006-2007 fiscal year, its fastest expansion in nearly two decades, according to the government's annual Economic Survey, released Thursday.
The survey said it was forecasting a slowdown because of tighter monetary policy and a weakening global economy.
After presenting the survey _ delivered to Parliament a day ahead of the annual budget presentation _ Finance Minister P. Chidambaram told reporters he thought India's next fiscal year looked promising, despite slowing growth.
"I am optimistic about growth and containment of inflation in the coming year," he told lawmakers. "If you wish me to sum up in one phrase the outlook for next financial year, I would say 'optimism,' but with caution as the watchword."
The Economic Survey is closely watched by markets for clues to what lies in the budget, due Friday.
The report called for allowing foreign companies to own 100 percent stakes in single-brand retailers, up from the 51 percent stakes that overseas owners are currently allowed to hold.
The move would not affect the likes of American's Wal-Mart Inc. or France's Carrefour SA, multi-brand retailers that are currently prohibited from opening their own stores by laws designed to protect India's millions of mom-and-pop shops.
Other suggested reforms included raising the foreign investment ceiling in insurance to 49 percent from 26 percent and opening coal mining to private companies.
The report said there was "heightened urgency" to upgrade the country's infrastructure, an investment that could top $500 billion.
Chidambaram echoed the report in calling the curbing of inflation a high priority for the government.
"Given the high level of food, oil and other commodity prices in international markets, the risks to inflation remain," Chidambaram said. "Thus keeping inflation under control in an uncertain global environment will be one of the major challenges in 2008-09."
The survey said the inflation rate, measured by the wholesale price index, would likely be roughly 4.4 percent in the current fiscal year, lower than an average of 5.4 percent recorded in the previous fiscal year.
India has gradually opened its markets to foreign competition and capital since the country switched from a socialist-style economy in the early 1990s, and the country's economic growth has averaged about 9 percent a year over the past four years.