Meets Hillary Clinton on sidelines of CEOs meet; U.S. side hopes for nod for foreign investment in education and lifting of FDI cap in insurance

Finance Minister Pranab Mukherjee on Tuesday held a meeting with Secretary of State Hillary Clinton on the sidelines of a meeting of CEOs from India and the U.S.

They are believed to have discussed bilateral relations, including economic ties. There was, however, no official word on the discussions.

On Monday, Mr. Mukherjee told senior executives of Financial Services firms that food inflation, which stood at over 16 per cent, would begin to come down after the middle of next month on the back of a good monsoon.

He said containing oil prices and fiscal deficit were two major challenges before the Indian economy, along with taming high inflation, currently running into double digits.

After their meeting, Mr. Mukherjee and Ms. Clinton, joined the CEOs for a luncheon hosted by the State Department in honour of the visiting CEOs.

The meeting of CEOs, co-chaired by Tata Group Chairman Ratan Tata and Honeywell chief David Cote, discussed the draft recommendations, expected to be presented to Prime Minister Manmohan Singh and President Barack Obama during the latter's visit to India in November.

Emerging from the meeting, Mr. Tata said it went on fine.

The CEOs Forum, reconstituted on the eve of Dr. Singh's State visit to Washington last year, also discussed the ways and means through which the private sector can contribute to enhance economic relations.

“We would be having the opportunity of reviewing the identified areas where deficiencies exist and how to rectify them,” Mr. Mukherjee, who is leading the Indian delegation, said.

“There are some big, bold recommendations, that are going to take courage on both sides,” President of the U.S. India Business Council (USIBC) Ron Somers, who has been interacting with the CEOs on both sides, told PTI.

“On the Indian side, we are hopeful that the monsoon [session] of Parliament can open the education sector for foreign investment and lift the FDI cap in insurance,” he said.

Indian industry leaders in the CEOs Forum included Reliance Industries Chairman Mukesh Ambani; Chairman and CEO of Bharti Enterprise Sunil Bharti Mittal; SBI Chairman O.P. Bhatt; Venu Srinivisan of the TVS Motors; S. Gopalakrishnan from Infosys; Chanda Kochhar, MD & CEO of ICICI Bank and Preetha Reddy, MD of Apollo Hospitals.

Among others are Biocon chief Kiran Mazumdar Shaw; Analjit Singh of Max India and Deepak Parekh of HDFC.

On Monday, Mr. Mukherjee told the executives: “Inflation in food articles was more than 17 per cent for a long time which will start declining after the middle of July, 2010 as the monsoon is expected to be normal this year,” he said.

The monsoon accounts for 80 per cent of rains India receives and 60 per cent of the area under cultivation is rain-fed. Last year, the country's crop production was hit owing to poor rains, leading to an upward spiral in food prices. Mr. Mukherjee attributed high inflation to constraints in supply side of food articles, which include cereals, pulses, edible oils and sugar among others. Driven by spiralling prices of essential items, inflation surged to double digits at 10.16 per cent in May, the highest in the last 19 months.

The inflation has spread to manufactured items including metal, textiles and plywood. The Finance Minister said another challenge before the Indian economy was to contain the oil prices as it had to import more than 70 per cent of its demand from outside.

The Empowered Group of Ministers, headed by Mr. Mukherjee, will consider raising petrol and diesel prices by Rs. 2-4 per litre on Friday in Delhi. The Finance Minister also said the first challenge before the country was to return to the path of fiscal consolidation and bring down fiscal deficit to 5.5 per cent this fiscal and 4.1 per cent next year. Fiscal deficit climbed after the government provided stimulus since December, 2008 to cushion the economy from the global financial crisis. The government was mandated by legislation to cut deficit, excess of its expenditure over receipts, to three per cent of GDP during 2008-09, but it more than doubled to 6.1 per cent, because of the stimulus. For 2009-10, the fiscal deficit rose further to over 6.6 per cent of GDP. This fiscal, the government projected fiscal deficit at 5.5 per cent of GDP. But over Rs. one lakh crore realisation from the sale of 3G and broadband wireless licences will help it bring it down to 4.5 per cent of GDP.

He said China's decision to allow its currency, yuan, to appreciate against the U.S. dollar will not hurt the Indian economy. Rather, India is happy over China's announcement of a flexible policy on yuan.

China ended its 23-month peg against the U.S. dollar, which saw the Chinese currency rising more than 0.4 per cent against the dollar — the biggest rise since 2005. It, however, fell by 0.2 per cent on Tuesday after major Chinese banks bought dollars. Yuan's appreciation against the dollar will increase the purchasing power of the Chinese, although it would make imports costlier for the West.

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