By Uttara Choudhury
New York: US Treasury Secretary Timothy Geithner, speaking at a business forum with Finance Minister Pranab Mukherjee, pressed India on Monday to embark on the "next wave" of financial sector reforms. He also urged New Delhi to grant US firms greater market access to India's booming economy which has the fourth-largest purchasing power. It's no secret that the US wants Bank of America branches and Wal-Marts to mushroom across India.
Geithner is hosting Finance Minister Pranab Mukherjee for the second annual meeting of the US-India Economic and Financial Partnership. Mukherjee and his A-team which includes Reserve Bank of India Governor Duvvuri Subbaro, his chief economic advisor Kaushik Basu, and Economic Affairs Secretary R. Gopalan will participate in formal talks at the Treasury on Tuesday with Geithner, the Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Mary L. Schapiro.
"I think in many ways, the Indian economy is outgrowing its financial system," Geithner told an India-US business forum on Monday.
"I think from our perspective, the most important thing we'd like to see is progress on financial reforms that provide a deeper, more liquid market for corporate debt for infrastructure financing, that allow a little more access of American companies and their technology in the financial area," he added.
Mukherjee said reforms in India were "a constant exercise" and the government hoped to script new legislation relating to banking, insurance and pension funds, but needed to first arrive at a consensus with other political parties.
The finance minister acknowledged that India faced serious inflationary pressures and was acting to contain them. He said India "could live with" inflation running at an annual pace of 6% to 6.5% but high oil prices this year had wreaked havoc. Inflation soared to 9.06% in May.
But the inflationary strain may ease up later in the year as many see oil prices grinding lower thanks to the International Energy Agency's plan to release 60 million barrels of oil from its strategic reserves.
"If this trend persists, it will provide substantial relief for global inflation management, particularly for large commodities importers," said Subir Gokarn, deputy governor for the Reserve Bank of India.
Geithner, who lived in New Delhi from 1968 to 1973 when his father was the Deputy Resident Representative for the Ford Foundation, praised India for persisting with a "more balanced" form of growth.
"India is in some ways a model for how to produce broad-based income growth," Geithner said. "It's a good, positive example for the rest of the world."
In perhaps, an oblique reference to the bad blood that characterizes US ties with muscle-flexing China, Geithner reflected warmly on relations with India; "I think if you look at this relationship, one of the things that's so encouraging about it is the relative absence of drama."
Among the issues for discussion on Tuesday will be how to finance the development of India's infrastructure, which offers major opportunities for US companies. US advocates say increasing foreign participation in banking and finance would deepen the pool of long-term investment in infrastructure, boosting growth without adding to the already onerous fiscal deficit.
"It doesn't follow that if you just relax every norm on foreign investment we'll get high growth," an Indian official told Firstpost ahead of Tuesday's meeting.
Opening the retail sector remains contentious, but this didn't stop Treasury Under Secretary Lael Brainard from bringing up the issue at a press huddle.
"Greater market access and retail multi-branding, those are all areas which matter," said Brainard while delving into how US retailers would spoil Indian consumers for choice by offering great quality at cheap prices.
The US treasury official could very well be right, but many fear allowing companies like Wal-Mart unfettered access would ruin millions of Indian family-run shops. Currently, foreign retailers can run wholesale outlets. Wal-Mart Stores Inc., with Bharti Enterprises, opened its first in 2009, but it still can't open direct-to-consumer shops that sell more than one brand.