Indian FinMin sees India as a new world engine for growth

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With China entering a period of economic slowdown, the world needs more than one engine to support global growth and India is ready to fill that role, according to Indian Finance Minister Arun Jaitley.

Jaitley and his Prime Minister Narendra Modi have been on a global charm offensive around the world to attract investment into Asia's third largest economy, which has largely held its poise while other emerging market countries have floundered.

While Modi was touring Silicon Valley to push his Digital India initiative to attract technology companies to the country, Jaitley was in Singapore and Hong Kong to meet business leaders in the region.

"China will still shoulder the largest growth in the world, but the world will need other reliable shoulders to carry it on," Jaitley told CNBC in an exclusive interview.

Despite having one of the highest growth rates among emerging markets, India had traditionally failed to attract foreign direct investment comparative to the size of its economy due to regulatory complexities.

Data from the World Bank show between 2010 and 2013, an estimated $114 billion worth of foreign investments entered India. In comparison, during the same period, Hong Kong had $328 billion, Singapore $223 billion, and China $1.245 trillion worth of foreign investment.

The World Bank's Ease of doing business Index, which is calculated by incorporating 10 indicators, ranked India 142 out of 189 countries this year.

India performed poorly on most of these indicators including starting a business, ease of getting credit, trading across borders, enforcing contracts, resolving insolvency, and dealing with construction permits.

As a result, many global manufacturing companies skipped India, and instead headed to China or Southeast Asia to set up their operation bases for the region.

"I think India has under-performed as far as manufacturing is concerned," said Jaitley.

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Since coming to power last year, the Indian government stepped up its push to lure foreign investments through the Make in India initiative that encourages multinational companies to shift their manufacturing bases to the country. It lifted foreign investment restrictions or increased quota in sectors such as telecom, retail, and railways. Companies were also provided with additional incentives at federal and state levels.

"We need a lot of investment," said Jaitley. "We've opened out, we've made investment proposal clearances much faster, our environmental decisions have become much faster."

And the world seemed to have taken note.

In the World Economic Forum (WEF)'s report on the Global Competitiveness Index (GCI), India galloped 16 places from last year to finish 55.

The Financial Times said, in a report citing its data service fDi Markets, India was in pole position to become the top destination for investments this year, surpassing heavyweights China and the U.S. In the first half of 2015, the report estimated $31 billion in investments entered the country, ahead of the $28 billion to China and $27 billion to the United States.

The Reserve Bank of India (RBI) cut interest rates by 50 basis points (bps) this week, pulling lower borrowing costs that to some observers appeared high after adjusting for feeble inflation. Lower interest rates should enable companies to refinance their debt and nudge India's enthusiastic shoppers to keep spending.

But the Indian government's ambitious plans to revamp the country's investment environment face several domestic and international obstacles.

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Atsi Sheth, the associate managing director of the Sovereign Risk Group at Moody's told CNBC, "There has been some progress at the margin in addressing regulatory complexity. But big ticket reforms like the GST (goods and services tax) and land acquisition bill are yet to go through parliament, signaling that reform will be a slow process."

Global uncertainty persists regarding the timing of the U.S. Federal Reserve's long-mulled increase in interest rates. Earlier this month, the Fed left the interest rate unchanged at record lows.

Jaitley remained unfazed by the possibility of global turmoil imperiling India's plans. He said his government was focused more on improving India's public policies, growth targets, investor confidence, and keeping inflation under control.

The government estimates fiscal deficit at 3.9 percent of gross domestic product for the financial year ending 2016 , compared to 4 percent the year before. Between April and July, the estimated deficit was 3.85 trillion rupees ($58.6 billion*), roughly 69.3% of the full-year target.

Prior to the rate cut by the RBI, inflation plunged to 3.66 percent in August, well below the central bank's 6 percent target for January 2016, sparking concerns that India was starting to feel the effects of deflationary pressures.

"I am one of those who believe that we've learned to live in the era of turmoil," Jaitley said.

*As measured on October 2, 2015

To see more of this interview, watch The CNBC Conversation: Arun Jaitley this weekend, with the first screening on Saturday October 3 at 6.30am SIN/HK (11.30pm GMT).