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Government of India
Ministry of Finance
10-December-2010 17:54 IST
Business Community asked to act more Proactively in Rural Areas to achieve Goal of Financial Inclusion;
Need to have Judicious mix of Equity and Efficiency Considerations in our Policy Making Process; Need for Greater Integrity in Branding, Advertising and Marketing : FM
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            Union Finance Minister, Shri Pranab Mukherjee has asked the business community to act and focus more proactively on our rural areas to achieve the ultimate objective of financial inclusion.  He said business and markets have to be equally sensitive to the needs and desires of rural India.  He said that rural market in India has saved the woes of many in urban India. Shri Mukherjee  said that for business in India to gain and sustain itself, it is important to have a strong  rural footprint. 

 

            The Finance Minister Shri Mukherjee was addressing an august gathering of industrialists and business community here today on the occasion of 90th Founder Day and Annual General Meeting of Associated  Chamber of Commerce (ASSOCHAM).

 

            The Finance Minister Shri Mukherjee said that business should not push the single agenda of profit maximisation.  He said that just as individuals  should not behave in a manner that would maximise their personal benefits regardless of the impact on others, companies should not focus just on maximising shareholder value at all costs. The FM said that there is a need for greater integrity in branding, advertising, and marketing and indeed in every realm of business.  He said that in a society like ours where literacy levels are low it is the onus of the sellers of financial products and services to go beyond checklist compliance and ensure suitability of a product  to prevent mis-selling in the market.

 

 

            Given the nature of our economy, the Finance Minister  said , a democratic government is duty bound to focus on promoting equity as the needs of the marginalised section of  society cannot be lost sight of.  He said that we have to ensure that resources are utilized efficiently and  competitive environment is maintained in all markets. The FM further said that there has to be a judicious mix of equity and efficiency considerations in our policy making process.

 

 

Shri Mukherjee  said that  innovation is not necessarily about superior or sophisticated products, it is also about processes.  He said that in a market such as ours,  there is scope for innovation in creating a distribution network to reach various products to a large number of people. He further said that indeed the gains to be reaped from innovations in product distribution may be far greater than gains in product innovation.

 

 

The complete text of the FM’s Speech  delivered on the occasion of 90th Founder Day and Annual General Meeting of Associated  Chamber of Commerce (ASSOCHAM) is as under:

 

 

President ASSOCHAM

Dignitaries on the dais,

Ladies and Gentlemen,

           

I am very happy to be here today to participate in the 90th Founder Day and the Annual General Meeting proceedings of the Associated Chamber of Commerce (ASSOCHAM). I am aware of ASSOCHAM’s long history and the accumulated wisdom of 90 years, which has guided its many initiatives to sensitize business leaders on issues relevant to markets, the economy and the nation at large. It has played a constructive role in reorienting the business model as the country progressed under different policy regimes since independence. ASSOCHAM has also provided a useful platform for the industry- government interface in planning and implementing polices for development of the Indian economy. I congratulate you all and your association on the successful journey so far.

 

2.         Over the last couple of decades, India’s economy has rapidly evolved. More recently, it has shifted to a higher growth path. The service sector has become the predominant contributor to the country’s Gross Domestic Product (GDP). The country’s financial integration with the world has been as rapid as its trade globalisation, if not more. If we were to go back a decade, very few would have anticipated the Indian GDP to grow at rates of 8 to 9 per cent, or our stock market indices to reach the levels that we see today. Though globalisation has brought new opportunities for Indian enterprise and its people, it has also brought new challenges and generated some concerns. Indeed the developments in the Indian economy in the last couple of years demonstrate this aptly.

 

3.         We have done well in recovering our growth momentum from the impact of the unprecedented global financial crisis and other external shocks over the last two years. From an average growth of 9.5 per cent in the three year period from 2005-06 to 2007-08, GDP growth slowed to 6.7 per cent in 2008-09.  It then recovered to 7.4 per cent in 2009-10 and has touched 8.9 per cent during the first half of 2010-11. The recovery has been broad based with agriculture, industry and services all contributing to the consolidation of the growth process. More importantly, the economy has become remarkably resilient to both external and domestic shocks.

 

4.         This resilience that India has demonstrated in recent times has been recognised and appreciated across the globe. It reflects a maturing of the economic management of the country and the growing competitiveness of our enterprise. This has happened even as the economy has become more integrated with global markets. It shows that globalisation and economic resilience can go hand in hand.

 

5.         The challenge now is to harness this growth to make the development process more inclusive, by improving the reach and quality of our social and economic infrastructure, reducing regional imbalances and improving the opportunities for the less privileged, while strengthening the role of Government as an enabler. This brings me to the theme of this meeting- ‘Profit Beyond Market’.

 

6.         I believe the recent economic slowdown and the rapid recovery that followed has reinforced the importance of walking on two legs- the rural India and the urban India. Business and markets have to be equally sensitive to the needs and desires of the rural India. Our rural economy is quite insulated from global impulses. It is untouched by credit cards and mortgages as known in the West. Consumption in rural areas has been related to the basic needs and limited aspirations of the people. Be it consumer durables or telecom, rural growth has been vibrant in every sector. I am told that more than half of Fast Moving Consumer Good sales in India come from rural markets, and this part of the market has grown at a robust rate. It helped us in moderating the growth decline as the impact of global slowdown reached our shores and contributed to a sharp recovery when the economy stabilised. In fact, I have no hesitation in saying that the rural market in India has saved the woes of many an urban Indian. It has shown that for business in India to gain and sustain itself, it is important to have a strong rural footprint. Indeed I would urge business community to focus more proactively on our rural areas.

 

7.         What is true for consumer goods is also true for financial products.  The distribution network of most financial products is concentrated in few urban centres.  Population in mid-sized towns and semi urban centres has to be extended easy access to financial services.  All market intermediaries including banks need to be bought into the loop to create synergy and ultimately benefit the financial markets and the average consumer in the country.  Just as interbank use of ATMs have positively impacted financial reach, alliance between various market participants will help overcome infrastructural constraints and create the scope for optimal use of resources and greater reach in every segment of our economy. 

 

8.         Given the nature of our economy, a democratic government is duty bound to focus on promoting equity. The needs of the marginalised cannot be lost sight of. At the same time in a globalised world we cannot afford to ignore or neglect the efficiency dimension. We have to ensure that resources are used efficiently and that competitive environment is maintained in all markets. There has to be a judicious mix of equity and efficiency considerations in our policy making process.

 

9.         Today corporate governance debate is moving from the effects of bad governance on minority and small shareholders to the effects on all stakeholders.  Company boards and management are concerned with the near term – often as near as the next quarter.  They live from quarter to quarter. I would like to caution boards that they should not ignore the longer term consequences of their behaviour on other stakeholders.  A company needs to balance the interests of different stakeholders.  Should a company invest in green technology that may not be economically viable in the short term but will reduce adverse impact on the environment in the long term?  Should a company make durable products that last long or go for high repeat sales?  Should a company add and charge for superfluous features in its products even though it knows very well that only a fraction of consumers will use them? Such issues need to be considered seriously.

 

10.       Ethics in business is going to emerge as a significant differentiator.  Businesses should not push the single agenda of profit maximisation.  Just as individuals should not behave in a manner that would maximise their personal benefits regardless of the impact on others, companies should not focus just on maximising shareholder value at all costs.  There is a need for greater integrity in branding, advertising, and marketing and indeed in every realm of business. All financial institutions in general and banks and micro finance institutions in particular should be careful while selling their products to vulnerable segments of the society. Financial inclusion should not be mis-lending or mis-selling. In a society like ours where literacy levels are low it is the onus of the sellers of financial products to go beyond checklist compliance and ensure suitability of a product to prevent mis-selling in the market.

 

11.       The global financial crisis has revealed certain gaps in the functioning of vital elements of the financial markets including corporate boards, credit rating agencies and auditors. In most cases there was serious mis-alignment of interests between managements and boards which was the root cause behind the crisis.  While new trading practices and variety of dazzling derivative products have made the financial markets more efficient, improving their depth, liquidity and risk management capacity, serious concerns have emerged on behavioural disposition of major market players. Even though they operate in a competitive market ambience, they are expected to be responsible risk- takers, balancing entrepreneurial impulses with fiduciary responsibilities.    Failure to adhere to prudent norms of corporate governance ultimately led to the demise of several multinational corporations in the context of the global financial crisis.

 

12.       I would like to emphasize that innovation is not necessarily about superior or sophisticated products, it is also about processes. In a market such as ours there is scope for innovation in creating a distribution network to reach various products to a large number of people. Indeed the gains to be reaped from innovations in product distribution may be far greater than gains in product innovation.

 

13.       Every single step taken in the right direction and in right earnest will go a long way in improving growth, equity, efficiency and stability in our economy. In conclusion, let me reiterate that India is a nation on the move. We have demonstrated great resilience in weathering the recent economic crisis, but we have miles to go before we can afford to take a break. I urge you all to seize the opportunity that beckons us and make every Indian have a genuine stake in our growing prosperity.

 

Thank you

*****

 

 

 

DSM/BY/GN