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UPDATE 1-India's new reform drive to draw investment - Geithner

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By Manoj Kumar and Rajesh Kumar Singh

NEW DELHI, Oct 9 (Reuters) - India's new drive to reform its economy will spur growth in private investment and income, U.S. Treasury Secretary Timothy Geithner said on Tuesday, welcoming recent steps that have ended more than a year of policy paralysis in New Delhi.

Sitting beside P. Chidambaram, whose appointment as India's finance minister in August helped trigger the rash of reforms, Geithner said the new policies offered "a very promising path to improving growth outcomes for the Indian economy".

India's economic growth has slowed to its lowest in nearly three years and earlier on Tuesday the International Monetary Fund (IMF) sharply cut its projection for GDP growth to 4.9 percent in 2012, one of the lowest official forecasts so far.

Foreign direct investment into India has fallen 67 percent since the start of the 2012/13 fiscal year in April after a record high the previous year.

"The recent reforms advanced by Prime Minister (Manmohan) Singh and Minister Chidambaram will help provide a foundation for stronger economic growth, an increase in investment, and more widespread gains in income," Geithner told a news conference with his Indian counterpart in New Delhi.

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Chidambaram, saying that India was "deeply locked into the global economy", told the news conference that he had raised the U.S. Federal Reserve's new round of quantitative easing with Geithner.

"I raised the concern that it may impact commodity prices and commodity prices may rise," Chidambaram said. "There is also of course a beneficial side. Some of that money may come to India as investments. But we need to balance both the advantages and disadvantages."

Chidambaram added that it was too early to conclude what the impact of this latest round of easing, known as QE3, would be.

Under QE3 the Federal Reserve will buy bonds backed by housing mortgages to lower interest rates and boost the economy.

Geithner said he and Chidambaram discussed how U.S. business could contribute to India's infrastructure and investment needs, and improving coordination on bilateral tax matters.

The reform measures announced by the Indian government over the past month have included raising the price of subsidised fuel to rein in the budget deficit, and opening the retail sector to foreign supermarkets.

The greatest challenge facing Singh, however, is curbing a deficit that a government panel warned last month had taken the country to a "fiscal precipice" and could hit 6.1 percent of GDP this fiscal year.

(Reporting by Manoj Kumar, Rajesh Kumar Singh, Arup Roychoudhury, Matthias Williams, Annie Banerji and Shashank Chouhan; Writing by John Chalmers; Editing by Alex Richardson)

((arup.roychoudhury@thomsonreuters.com)(+91 11 4178 1007)(Reuters Messaging: arup.roychoudhury.thomsonreuters.com@reuters.net))

Keywords: INDIA USA/