Free Market Needed, India Minister Says

NEW DELHI-India’s new finance minister said Tuesday that the country was passing through an “unprecedented economic crisis” and promised to reform the system of state control of the economy.

“I want to free the economy from the webs of unnecessary control; I am dealing with a grave economic situation,” Manmohan Singh told a news conference.

State control and the bureaucracy have prevented multinational companies from investing in India despite its vast market of 843 million people.

Successive governments have refused to soften the control.

“This problem can’t be solved by emotionalism, we have to take drastic steps and good decisions,” Singh said. “We can do business with the multinational.”

Singh, a former governor of the Reserve Bank, was chosen to head the finance ministry by Prime Minister P. V. Narasimha Rao. It was the first time that a former bureaucrat with no political affiliation was made the finance minister. The new government took office last week.

Singh refused to go into statistics of the Indian economy but said that unless drastic reforms were introduced immediately, India was heading for an economic disaster.

India has sharply restricted imports in the past months to stem the depletion in its hard currency reserves.

Media reports have said the country has asked its major creditors, the United States, Germany and Japan, to reschedule loans to avoid defaulting. The government has asked donor countries to expedite aid already committed.

India’s outstanding foreign loans stand at more than $46 billion. Interest payments alone next year will be more than $1 billion.

The inflow of hard cash was reduced last year by a sharp drop in tourism and a cutoff in workers’ remittances from the Middle East as a result of the Gulf War.

Foreign currency reserves plunged to $2.3 billion in the first week of March. A $1.8-billion emergency loan from the International Monetary Fund approved in January has already been depleted.

A second loan request for $2 billion is being delayed by late presentation of the budget. The IMF has said it wants to see the budget and how India will tackle its economic ills, before granting the loan.

Last month, India sold 20 tons of gold to tide over the foreign exchange crisis, fetching about $200 million.

Singh said there was nothing wrong in seeking another IMF loan. Finance officials said Singh has written a letter to Michael Camdessus, managing director of the IMF, outlining India’s economic situation and needs.

“I am going to use this crisis to begin a process of structural change,” Singh said. “We will look at all existing control that comes in the way of exercising creativity.”