By David Lawder and Paul Eckert
WASHINGTON (Reuters) - India has outgrown its financial system, Treasury Secretary Timothy Geithner said on Monday, calling for cooperation on reforms that would deepen India's capital markets and allow U.S. firms more access to them.
Geithner, speaking at a business forum with Indian Finance Minister Pranab Mukherjee, said India's future growth largely depended on the "next wave" of financial reforms.
The two finance ministers and their top lieutenants will participate in annual economic talks in Washington on Tuesday.
"I think from our perspective, the most important thing we'd like to see is progress on financial reforms that provide a deeper, more liquid market for corporate debt for infrastructure financing, that allow a little more access of American companies and their technology in the financial area," Geithner said. "Our interests are pretty complementary as a whole."
The second installment of the U.S.-India Economic and Financial Partnership talks, launched last year in New Delhi, are not likely to stir acrimony. The two democracies, both powered by domestic-led growth with market-driven currencies, have many common goals.
"If you look at this relationship, one of the things that's so encouraging about it is the relative absence of drama," Geithner said.
Last month, the United States and China held much more controversial bilateral talks, sparring over currency policies, human rights and U.S. high-technology exports.
The U.S. wants to make India one of its top 10 trading partners in coming years. Currently, bilateral trade between the two countries is about $49 billion annually, just over a tenth of the $456 billion annual U.S.-China bilateral trade.
INDIA REFORMS, INFLATION BATTLE
Mukherjee said reforms in India were "a constant exercise" and pledged that India would press forward with its reform agenda and the legislation that would enable it.
The Indian finance minister also acknowledged that India faced serious inflationary pressures and was acting to contain them. He added that while India "could live with" inflation running at an annual pace of 6 percent to 6.5 percent, the level this year may be higher because of high oil prices.
A top Indian central banker noted earlier on Monday that the recent easing of oil prices will aid the inflation fight.
"If this trend persists, it will provide substantial relief for global inflation management, particularly for large commodities importers," said Subir Gokarn, deputy governor for the Reserve Bank of India.
Earlier this month, India raised interest rates for the 10th time in just over a year, boosting the rate at which it lends to banks by 25 basis points to 7.5 percent.
The RBI's baseline forecast anticipates India's annual growth rate slowing to around 8 percent, Gokarn said. This compares to about 8.5 percent for the 2010/11 fiscal year.
"From the inflation management perspective, this is not an entirely undesirable outcome," he added. "If it results in a significant reduction in the inflation rate, it will represent a soft landing, which in turn opens up the opportunity for a reversal of the interest rate cycle."
IMF SUPPORT UNCLEAR
A day before the International Monetary Fund's executive board was set to begin deliberations to select its next managing director, both Geithner and Mukherjee declined to be drawn on which candidate they support -- France's Christine Lagarde or Mexico's Agustin Carstens.
Many emerging market officials, who have pushed for a greater say in how the IMF and similar institutions are run, have called for an end to the tradition of appointing a European to head the global rescue lender.
Mukherjee sidestepped a question on the matter, saying only: "I'm quite confident that these institutions will be reformed."
Geithner, who could swing the vote for Lagarde with a U.S. endorsement, declined to answer, saying that an a selection process that he pledged would be "open" had produced "two very credible candidates."
(Reporting by David Lawder and Paul Eckert, Writing by David Lawder; Editing by Bernard Orr)