By Nick Mann | 1 November 2012

India needs to tackle ‘critical deficiencies’ in its economy that are increasing its budget deficit and deterring investment, the country’s prime minister Manmohan Singh said today.

Speaking in New Delhi, Singh said the fallout from the global economic crisis meant India’s growth was slowing down, its exports had fallen and its fiscal deficit was growing.  India’s budget deficit reached 5.8% of gross domestic product last year, compared to 3.2% in 2007/08.

This, he said, was ‘too high’ and ‘acts as a deterrent for domestic and foreign investment’. India has a target to achieve almost $1 trillion of infrastructure investment during its current five-year economic plan, which runs from 2012-17.

To reach this goal, Singh said ‘we will have to overcome the constraints that currently deter or slow down this investment. Fuel supply arrangements, security and environmental clearances and financing difficulties are among these constraints.’

In particular, he identified the growing gap between the supply and demand of electricity as a major constraint on development. ‘It is a major factor in widening the deficit on current account of our balance of payments as well as the fiscal deficit,’ he said. 

‘It is imperative that we come to a common understanding on these issues and work out mechanisms  and remedial measures that will enable us to tackle these critical deficiencies on a priority basis.’

On Tuesday, Indian finance minister Shri Chidambaram said the government  was ‘determined’ to tackle its burgeoning deficit, after a state-appointed commission last month warned that without action it could increase to 6.1% of GDP.

The government plans to sell off state assets, introduce a new tax on goods and services and improve tax collection as part of a package of measures it hopes will reduce the deficit to 3% of GDP by 2016/17.

In his speech today, Singh said India could achieve the goals it had set itself if they were approached ‘with courage and conviction’.

He added: ‘My own view is that while we need not be unduly gloomy about our prospects, we certainly need to redouble our resolve to meet the challenges before us and rise to the task of governance.’