India targets domestic demand; concerns on prices

India will focus on driving domestic demand until key developed economies recover and will not exit fiscal stimulus measures until necessary, Finance Minister Pranab Mukherjee said on Tuesday. Separately, a central bank deputy governor said India faces a dilemma of needing to contain rising inflation while trying to support growth and managing foreign capital inflows.
"There is a need of generating strong domestic demand until the robust recovery all over the world, particularly the developed world, takes place," Mukherjee told a World Economic Forum event in New Delhi. To tap domestic demand, which has helped insulate India from the worst of the downturn, Renault, Nissan Motor Co and their Indian partner on Tuesday announced plans to make an ultra low-cost car for India's emerging middle class.
Globally, companies and investors are looking to China and India as growth drivers to offset the downturn in established markets. "The train is leaving the station now. You have to ensure that capacities are coming because India will be taking off, already taken off in terms of the car market," Carlos Ghosn, CEO of Renault and Nissan told a media briefing at a World Economic Forum event on Tuesday.
He was one of several corporate officials expressing bullishness about domestic demand in Asia's third largest economy during the three-day event. That sentiment was boosted by Prime Minister Manmohan Singh's announcement on Sunday that financial reforms, such as building up a domestic bond market and expanding foreign investment in sectors like insurance, would be pushed forward.
Mukherjee repeated his pledge for massive investments in the agriculture sector and infrastructure, and acknowledged that it would be a challenge for India to compensate for the loss in exports through domestic demand. "It is not easy for us to diversify the market overnight and make up the loss, so we shall have to wait for some time," he said.
Still, India is one of the few countries in a position to talk about withdrawing extraordinary measures implemented to help it weather the global downturn, and is expected to be among the first of the Group of 20 nations to begin raising interest rates to curb looming inflation.