By Arun Kumar

Washington, June 28 (IANS) Assuring American investors that India was firmly set on a continuous reform path, Indian Finance Minister Pranab Mukherjeee has said that with recent "major steps" India is back on its high 8.5 plus percent growth path.

"That does not mean that we are returning to growth path without problems," he told a India-US business forum Monday with US Treasury Secretary Timothy Geithner ahead of the second round of Economic and Financial Partnership talks here Tuesday.

While India's growth is largely domestically driven, inflation pressures have been a "serious constraint which we shall have to tackle" to check the recent deceleration of growth, Mkherjeee said.

Apart from high oil prices and commodity prices, it is supply problems that have caused inflation problems, he said suggesting that while 5 to six percent inflation would be ideal, he believed the Indian economy could handle inflation of up to 6.5 percent.

"Monetary policy and fiscal policy thus must move in tandem. In India, we are doing so," he said.

"Tolerable level of inflation is very difficult to define, but in our economy we feel that if we can keep the inflationary pressure within five to six percent it would have been ideal, but we can deal with six, six-and-a-half percent," Mukherjee said.

Outlining a series of reforms underway from bringing greater clarity and predictability to foreign direct investment regulations, banking, insurance and pension funds, he hoped the planned measures would get parliamentary approval with talks on to bring about a consensus.

Geithner acknowledged that the US economy benefits from India's rapid growth while not impeding India's economic objectives saying, "Growth in India is good for the United States, no threat to the United States."

"The most rapidly growing and the strongest parts of the American economy are the ones that are most able to benefit from the rapid growth in India," Geithner said adding emerging markets provide "tangible benefits to more export opportunities."

However, he asserted that financial system reform were the key to India's future growth and to realise the "enormous potential" in economic ties between the two countries.
"We are just at the very beginning of unlocking the enormous potential of this relationship," Geithner said. "India is at the point now where future growth will depend on the success of the next wave of reform."
"From our perspective, the most important things we'd like to see are our progress on financial reforms, that provide a deeper more liquid market for corporate debt financing that allow a little more access to American companies and their technology," he said.

"I don't see any conflicts with our objectives there," Geithner said suggesting "Our interests are pretty complementary as a whole."

Geithner also said for the global economy to reach its maximum potential of growth and sustainability more balance is needed. He said more modest current account surpluses from countries like China and smaller deficits in the US, would help growth and reduce volatility in capital markets.

Later Geithner hosted a working dinner for Mukherjee, Reserve Bank of India Governor Duvvuri Subbarao and Federal Reserve Chairman Ben Bernanke ahead of Tuesday's formal talks at the Treasury.