Narendra Modi government on Friday proposed giving foreign investors a bigger role in India's giant insurance and aviation sectors to help reverse weakening growth and investment that threatens to take the shine off its recent landslide election victory.
Finance Minister Nirmala Sitharaman unveiled the proposals while presenting the budget for the fiscal year ending March 31, 2020 to parliament, the first since the government was re-elected in a vote in April and May.
Modi has set a target of growing India into a $5 trillion economy by 2024/2025 from $2.7 trillion that a government report on Thursday said will be done on the back of higher investment, savings and exports in the way China's growth was propelled.
"The government will examine suggestions of further opening up FDI (foreign direct investment) in aviation, media, and insurance sectors in consultations with stakeholders," Sitharaman said.
She said 100 percent foreign ownership will be permitted for insurance intermediaries and local sourcing norms will be eased for FDI in retailers selling a single brand.
India currently allows foreign direct investment in single-brand retail but mandates investors to source locally 30 percent of the value of good purchased.
At present, India allows 49 percent foreign ownership through the automatic route in the insurance sector, which is worth billions of dollars and has been tightly controlled for decades for fear of a backlash from the unions.
"It is high time India gets fully integrated into the global value chain of production of goods and services but also becomes part of the global financial system to mobilize global savings mostly institutional in insurance, pension, and sovereign wealth funds," she said.
But economists say scaling up Asia's third-largest economy in rapid fashion will need bold reforms including freeing up land and labour markets, which Modi shied away from in his first term for fear of political backlash.
Capital Economics said in a note on Friday that reaching that target "is dependent in large part on achieving real GDP growth of 8 percent a year, which we think is unlikely."
Land and labour reforms are difficult in a democracy like India and it seems unlikely Modi will risk drawing the ire of his Bharatiya Janata Party voters that re-elected him with a huge mandate.
During the budget speech, Indian markets were down.
The broader NSE index was down 0.37 percent while the benchmark BSE index was trading 0.29 percent lower at 39,793.46.
The 10-year benchmark government bond yield was at 6.72 percent , compared to 6.75 percent pre-budget. The rupee had weakened to 68.73 from its 68.70 pre-budget.
"Nothing concrete has been announced so far, that disappointment is reflecting in markets," Saurabh Jain, assistant vice-president research, SMC Global Securities said.
India's economy is also running into global headwinds with growth weighed down by trade wars and protectionism.
Asia's third-largest economy grew at a much slower-than-expected 5.8 percent in the last quarter, the weakest growth in five years and far below the pace needed to generate jobs for the millions of young Indian's entering the labour market each month. And the unemployment rate rose to a multi-year high of 6.1 percent in the 2017/18 fiscal year.New investments proposals in 2018/19 fell to 9.5 trillion rupees, the lowest investment proposals recorded in 14 years, according to Centre for Monitoring Indian Economy (CMIE), a Mumbai based think tank.