(Reuters): India's growth rate is poised to overtake China's within two to three years, despite a near-term slowdown, the finance ministry's chief economic adviser Kaushik Basu said on Monday.
Basu told a conference that it was necessary for India to throttle back growth in the short-term to control inflation and preserve long-term growth prospects.
"I would argue that this is a road bump, a sticky patch. The medium- to long-run growth prospect for India happens to be very good," he said. Basu, speaking at a conference ahead of high-level U.S.-India economic talks, said India's Ministry of Finance would make new growth projections next week. He said there was "a lot of lamenting" about a slowdown from India's recent growth rates.
The economy grew 8.5 percent in the last fiscal year, but growth slipped to 7.8 percent in the January-March period.
Basu said the government was moving forward with plans to change the way it subsidizes fuel and would allow kerosene to find its true market price while giving vouchers to the poor to directly subsidize their purchases of the fuel.
He said allowing foreign investment in India's long-coveted retail sector would help temper inflation and provide better management of food supplies. Lael Brainard, the U.S. Treasury's undersecretary for international affairs, told the conference the two countries have tapped only a small fraction of their joint economic potential despite rapid growth in trade in recent years.
She called for "reinvigorating" the two countries' commitment to domestic reform in their financial services industries and broader economies. "We are going to continue to deepen our collaboration in the Financial Stability Board, the IMF and the G20, where the U.S. and India -- based on our shared growth model, powered by domestic consumers, by markets, by innovation -- will work together to advance our goals for more-balanced growth," she said.