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India's New Government Promises Continued Economic Reform - 2004-06-06

India's new left-leaning government is assuring businessmen and investors that it remains committed to implementing economic reforms championed by the previous government.

In a series of recent meetings with top domestic businessmen and foreign investors, Finance Minister P. Chidambaram sought to calm fears that the new government's economic policies will stall the country's surging growth.

"We will do everything in our power to advance economic reforms," he said. "We also remain deeply committed to maintaining fiscal prudence and financial discipline."

Investors and industry have been worried about the economic direction India's new left-leaning government will take, and stock markets have remained jittery since it came to power last month.

The Congress Party-led government has announced it will scrap key elements of the former administration's privatization program, such as the sale of profit-making state enterprises and publicly owned banks.

It has already slashed the level of foreign investment allowed in the country's two main airports, in New Delhi and Bombay, from 74 percent down to 49 percent. Such moves have fueled concern that other pending reforms might also be cut back.

The government has also promised to step up investment in the rural sector to help India's poor farmers. But there are fears that higher spending in areas such as agriculture will increase the country's fiscal deficit, currently running at about five per cent.

Analysts say investors are watching to see how the government will implement promises to continue economic reforms when it announces its budget next month.

Economist C.D. Wadhwa, of the independent Center for Policy Research in New Delhi, is confident the new government will continue in general with policies that encourage foreign investment, and open up India's economy.

But he says such matters as labor reforms may be stalled by the influence of the leftist parties that are providing crucial support to the government.

"There will of course be some ups and downs, but on the whole there is neither any panic nor any great concern in terms of very major fundamental reversals," said Mr. Wadhwa. "The process will continue, economic reforms will continue, and in the same direction, there may be small changes here and there."

Over the last year, as India began emerging as one of the world's promising high-growth economies, foreign investors have poured billions of dollars into the country. The economy grew nearly eight percent last year, and is expected to rise about seven percent this year.