US Calls For More Investment-Friendly Indian Government

WASHINGTON (Reuters) - The United States on Wednesday urged the Indian government that emerges from ongoing elections to follow economic policies that encourage investment, saying Washington would like to see bilateral trade grow to $500 billion a year.

Nisha Biswal, U.S. assistant secretary of state for South and Central Asia, said future economic growth in South Asia hinged on India as the region's growth engine.

However, Biswal said that while Indian leaders had targeted $1 trillion in infrastructure investment over five years to close gaps preventing growth in manufacturing, policies still inhibited foreign investment. She said India ranked a poor 134 out of 189 countries as a place to invest and start a business.

"India, the world's largest democracy, must decide its own path to the future," Biswal said in a speech at Harvard University's Kennedy School of Government.

"Will it make the reforms necessary to attract investment? Will it capitalize on the opportunities that lie in front of it?

"Those are the questions that India's voters are asking as they cast their ballots and those are the questions that we want to see answered," she said.

Growth in Asia's third-largest economy, has almost halved to below 5 percent in the past two years on weak investment and consumer demand, the worst slowdown since the 1980s.

Polls show the nationalist Bharatiya Janata Party (BJP), the main opposition party, is on course to win most seats in the election that began on April 7.

In its election manifesto, the BJP said it would welcome foreign direct investment in all sectors that create local jobs, - except for supermarkets, a setback to global chains such as Wal-Mart Stores Inc and Carrefour

It remains unclear though whether the BJP will follow through on the supermarket ban or whether its announcement was just pre-election rhetoric.

BJP POLICY CAUTION

BJP insiders remain cautious about laying out specific plans because the party may need to adjust its policies after the election to win over allies and form a coalition government if it falls short of the parliamentary majority required to rule. Biswal said India had the potential to exceed all expectations economically, but needed to adopt investment and tax policies designed to lure, not deter, capital flows and a system of timely regulatory approvals and contract enforcement.

It also needed to protect intellectual property rights, she said.

"The more integrated India is into global markets and into the economic architecture of Asia, the more India's economy will grow and benefit the entire global economic system," she said.

Biswal said the United States wanted to see bilateral trade grow to $500 billion a year. It is about $100 billion currently.

Arun Jaitley, a senior BJP leader tipped to be finance minister in the new government, said in an interview this weekend that the party should give direction in five broad areas: infrastructure, building suburban and new urban townships, massive skill development programs, tourism, and lowering costs for business.

Capital investment contributes nearly 35 percent to India's $1.8 trillion economy, but it barely grew in the fiscal year that ended in March as delays in clearances from various ministries and funding issues grounded many major projects.

In its manifesto, the BJP said it would seek friendly relations with neighbors, but in an apparent reference to the historical troubles India has experienced with its rival Pakistan, vowed to "deal with cross-border terrorism with a firm hand" and take a "strong stand and steps" when required.

Biswal said an improved climate between Indian and Pakistan could "pay enormous economic dividends."

"India-Pakistan trade in 2013 was still a paltry $2.5 billion," she said. "There's no reason that number can't quadruple in a few years' time to $10 billion."

"We have heard some positive murmurings in Islamabad and Delhi that both governments are moving in this direction and we are hopeful that they will make progress after the Indian election."

(Reporting by David Brunnstrom; Editing by Lisa Shumaker)