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UPDATE 2-India finmin hopeful on economy, but urges reform push

* Without reforms, risk of growth slowdown persists - finmin

* Says economy to pick up in remaining qtrs of 2012/13

* Says will unveil "credible, feasible" fiscal plan

(Adds quotes, more details) By Manoj Kumar

NEW DELHI, Oct 8 (Reuters) - India's economic slowdown hasbottomed out, but a full recovery requires tough decisions,Finance Minister P. Chidambaram said on Monday, signalling hisintent to push through unpopular reforms.

After years of policy inertia that hit investments, slowedeconomic growth to a near 3-year low and put India'sinvestment-grade credit rating in peril, the Congress-led rulingcoalition is on a reform overdrive.

"Without reforms, we risk a sharp and continuing slowdown ofthe economy, which we cannot afford given the imperative need togenerate jobs and incomes for a large population, most of whomare young," Chidambaram told a news conference.

In the last few weeks, the government has increased theprice of heavily subsidised diesel, opened up the retail sectorto global supermarket chains, allowed foreign airlines to buystakes in local carriers and proposed raising the bar on foreigndirect investment in insurance firms.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ India allows foreign airlines to buy stakes India unveils big bang reforms Cabinet backs insurance, pension reforms India may roll back on diesel hike ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> WORST OVER?

While the recent reforms have helped financial markets rallyand boosted investor sentiment, they may not be good enough tolift GDP growth, which slowed to 5.5 percent in April-June.

Chidambaram, who moved into his post in August, struck anoptimistic note, predicting better economic growth in theremaining quarters of the fiscal year to end-March 2013 and areturn to average growth of about 8 percent during the next fiveyears. Analysts say federal finances and capital investment needto improve before the economy again hits the 9 percent growth itwas clocking before the 2008 global financial crisis.

The investment rate has fallen to 32 percent of GDP from 38percent in 2007/08. The fiscal deficit widened to 5.8 percent ofGDP last year from 3.5 percent in 2007/08.

The high deficit is counteracting the Reserve Bank ofIndia's efforts to control demand-driven price pressures, whilethe government's use of domestic savings to finance the deficitis crowding out private investment and lowering growthprospects.

FISCAL CORRECTION

In March, New Delhi promised to narrow the fiscal deficit to5.1 percent of GDP this fiscal year, but sluggish tax revenuesand high spending on fuel, food and fertilizer subsidies havecast doubt on that commitment. "No one will have confidence inthe Indian economy if there is uncertainty about the fiscalstability of the country," Chidambaram said.

"It is our intention to announce a credible and feasiblepath of fiscal correction beginning this year and ending in thefifth year of the 12th plan," which ends in March 2017.

In recognition of the mounting worries over public finances,Chidambaram recently appointed a committee led by a formerofficial, Vijay Kelkar, to recommend ways of improvinggovernment finances. In its report, the Kelkar panel said theeconomy was on the edge of a fiscal precipice and suggestedslashing subsidies urgently to curb a deficit it said could hit6.1 percent of GDP this fiscal year.

But in a country where any tinkering with subsidies raises apolitical storm, it would be tough for the government toimplement the panel's recommendations in full.

Chidambaram said all the subsidies on food, fuel andfertilizer cannot be wished away, but promised to takecorrective steps after receiving feedback on the Kelkar report.

To ease pressure on the fiscal deficit, the government islooking to increase revenues through more efficient taxcollections, an auction of cancelled second-generation mobilephone licences and sales of stakes in state-run firms.

(Writing by Rajesh Kumar Singh; Editing by Frank Jack Danieland Ian Geoghegan)

((frank.daniel@thomsonreuters.com)(+91 11 4178 1003)(ReutersMessaging: frank.daniel.thomsonreuters.com@reuters.net))

Keywords: INDIA ECONOMY/