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

(Adds details and background)

By Manoj Kumar and Rajesh Kumar Singh

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

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

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

Foreign direct investment into India has fallen 67 percentsince the start of the 2012/13 fiscal year in April after arecord high the previous year.

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

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

"I raised the concern that it may impact commodity pricesand commodity prices may rise," Chidambaram said. "There isalso of course a beneficial side. Some of that money may come toIndia as investments. But we need to balance both the advantagesand disadvantages."

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

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

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

The reform measures announced by the Indian government overthe past month have included raising the price of subsidisedfuel to rein in the budget deficit, and opening the retailsector to foreign supermarkets.

The greatest challenge facing Singh, however, is curbing adeficit that a government panel warned last month had taken thecountry to a "fiscal precipice" and could hit 6.1 percent of GDPthis fiscal year.

(Reporting by Manoj Kumar, Rajesh Kumar Singh, ArupRoychoudhury, Matthias Williams, Annie Banerji and ShashankChouhan; Writing by John Chalmers; Editing by Alex Richardson)

((arup.roychoudhury@thomsonreuters.com)(+91 11 41781007)(Reuters Messaging:arup.roychoudhury.thomsonreuters.com@reuters.net))

Keywords: INDIA USA/