Following is the Speech of the Union Finance
Minister Shri P. Chidambaram at India Day: “India - Next Wave of Inclusive
Growth today at ADB Meeting at IEML, Greater Noida today:
President,
ADB, President, FICCI, delegates to the ADB Annual meeting and friends,
I
am happy to be here today, when there is renewed optimism in India’s growth
story. Seven years ago, when I addressed the opening session of the India Day
at the ADB’s Annual Meeting at Hyderabad, I had exhorted you to participate in
our efforts. Today, my confidence stems from the fact that while India may not
be insulated from the difficulties plaguing the world, India‘s economic
fundamentals are strong. With the economic and fiscal reforms already put in
place including those on the anvil, I expect India’s growth to be robust and sustainable.
I am confident that it will gather further momentum in the coming years. India
has become an attractive destination for foreign investors. We have opened up
the economy further to foreign direct investments.
The Indian growth story is fascinating. Let’s
look at it in the global context:
· The global
economy is yet to recover from the economic meltdown of 2008 which has impacted
on both growth and employment opportunities across countries. Compounding the
problems further is the European debt crisis.
· Recent
signs of economic recovery have been weak and is uncertain. Global
economic growth has slowed down from 3.9 percent in 2011 to 3.2 percent in
2012. According to IMF projects, it is expected to recover only to 3.5% in
2013. The growth rate in the advanced economies, which are our major markets,
declined from 1.6 per cent in 2011 to 1.3 per cent in 2012. The US fiscal
difficulties continue, with sequestration and the prospect of yet another fight
over debt still holding back growth. The crisis in the Euro-zone also continues
to pose serious risks for the global economy, notwithstanding the OMT announced
by the ECB. Actions in even a tiny economy like Cyprus,
have ripple effects across the world.
While, the Indian economy grew at 6.7%, 8.6%,
9.3% and 6.2% in the four years from 2008-09 to 2011-12, respectively, GDP
growth is expected to decline to 5.0 to 5.5 per cent in fiscal 2012-13.
Clearly, the persistence of the global slowdown has finally impacted us
significantly. I must, however, candidly admit that some of the reasons for our
slowdown are home-grown. The boost to demand given by the monetary and fiscal
stimulus following the global crisis of 2008 was significant. This helped in
strong recovery with final consumption growing at an average of over 8 per cent
annually between 2009-10 and 2011-12. An unfortunate consequence of this,
however, was somewhat high and stubborn inflation. It is this that led to a
strong contractionary monetary response that slowed
consumption demand. Starting 2011-12, corporate investments have been adversely
affected. As the growth slowed down and Government revenues failed to keep pace
with welfare spending, the fiscal deficit emerged as a matter of concern. With
Government savings falling and private savings also shrinking, the current
account deficit (CAD) widened to 4.6 per cent in H1 of 2012-13 from 4.0 per
cent in H1 of the previous year.
We are addressing this problem proactively.
However, we must remember that even in face of worst possible confluence of
adverse global and domestic factors, we remained, even in 2012-13, one of the
fastest growing large economies in the world. Nevertheless, I am not satisfied
with the 5%+ growth rate. India’s potential growth rate is 8%+ and we cannot
afford to become complacent and sit back. We are a mature and vibrant democracy.
We have taken effective steps to rein in economic slowdown and fiscal stress in
the past few months. These measures have begun taking effect.
India’s Inherent Strengths: At the forefront of all this is the focus on
inclusive growth. What is “inclusive” growth? It is growth that is broad-based,
shared and one that focuses on the poor. A recent estimate was that for every
one percent of GDP invested in infrastructure, India creates almost three and a
half million direct and indirect jobs. With our focus on investments in the
infrastructure sector, I want you to consider the reasons why I think India’s
growth is likely to be high and sustained for decades:
·
First, India’s population is young. According
to a recent IMF study, India’s demographic dividend could add about 2% to per
capita GDP growth over the next two decades.
·
Second, India is focusing on building world
class infrastructure. This policy thrust has spin-offs in terms of job creation
and enhanced investments in the manufacturing. For instance, the Delhi Mumbai
Industrial Corridor, entailing over $ 90 billion in investment, will link Delhi
to Mumbai’s ports, covering an overall length of 1483 km passing through six
States. This project will have nine mega industrial zones of about 200-250 sq.
km. each, high speed freight lines, three ports, six airports, a six-lane
intersection-free expressway connecting the country’s political and financial
capitals, and a 4000 MW power plant, and provide a plug and play environment
for manufacturing investment.
·
Third, India has a large portion of its
population engaged in agriculture. We intend drawing this large workforce into
the high value addition jobs created by investments in manufacturing. An
ambitious skill development programme is underway to equip our populace with
requisite skills and integrate into the emerging job market.
·
Fourth, India’s household final consumption
is a healthy 57 percent of GDP. As incomes grow, a significant portion of it
will be spent. In recent years, growing rural demand has added to healthy urban
middle class consumption demand growth, buffering India somewhat, though not
entirely, from paucity of aggregate demand that plagues the world.
These
factors underlying India’s growth prospects are supported by many other drivers
like the energy and vibrancy of our entrepreneurs, a strong services sector,
emerging knowledge spheres and sunrise sectors, and a large and growing number
of engineers and scientists.
o
Our fiscal deficit in 2012-13 is estimated at
5.2%. We may better this target. The Budget 2013-14 estimates a fiscal deficit
of 4.8% at the end of the financial year. I am confident that this will
steadily reduce to 3% or even less by 2016-17.
o
For fiscal consolidation, we have focused on
controlling outgo on subsidies through better targeting. These include
rationalisation of fertilizer subsidies, capping of the number of subsidized
LPG cylinders, decontrol of petrol prices, gradual
rationalisation of diesel prices and introduction of direct benefit transfer
system to substantially eliminate leakages and to help better targeting of
subsidies in various programs. Measures to pass through fuel prices will also
help reduce demand for oil imports, and thus the CAD. However, let me stress
that our fiscal consolidation has a human face and the Government will continue
to provide support for the poor and the needy.
o
We have set up a Cabinet Committee on
Investment to address and resolve bottlenecks impacting implementation of large
projects. It has already cleared investments to the tune of USD 27 billion.
o
FDI regime in areas like multi / single brand
retail, airlines etc. have been further liberalized and I am confident there
will be forward movement in areas like insurance and pensions.
o
A 15% investment allowance for capital
investment exceeding Rs. 100 Crore or about USD 20
million within a specified timeframe has been announced. This is in addition to
the normal depreciation available for new plant and machinery.
o
Tax incentives for first-time home buyers
have been provided. This is expected to give impetus to construction industry.
o
Public Sector Units have been advised to accelerate
their capex investments.
o
Concerted steps have been taken to provide
impetus to P&NG exploration and coal production (with likely medium term benefits for the CAD).
o
An independent regulatory authority will be announced
shortly for the road sector and coal sector, and for tariff setting in the
Railways.
o
Alleviation of coal shortages affecting power
generation is being addressed by importing coal and assuring supply of definite
quantities of domestic coal.
o
The Bengaluru-Chennai Industrial Corridor and
Begaluru-Mumbai Industrial corridor have been
conceived to provide robust infrastructure support for industrial growth in
these high potential areas.
o
MSME sector is being given special attention.
o
Two new major ports have been identified for
development.
o
Fillip is being given to green, sustainable
energy projects.
o
Steps have been taken to address CAD by
moderating gold demand through higher import duties and efforts to monetize
idle gold stocks lying with citizens and Gold ETF AMCs.
o
Steps are also being taken to address food
price inflation through efforts targeting higher production of protein foods,
and improved supply chain logistics to enable comprehensive procurement, processing and distribution of agri produce that would potentially reduce wastage and
control food price inflation.
Simultaneously,
steps are being taken to cover the most remote, least developed areas and
populations in the widening infrastructure and financial scope. Integrated
action is being taken in primary health, education, low-cost housing and food distribution.
Pilot schemes are being launched through innovative public private partnership
models.
For
financial inclusion, the central bank, the RBI, has asked rural banks to set up 25% branches in un-banked regions. As
on March 31, 2012, regional rural banks had a network of 16,914 branches in the
country. Roll-out plans have been drawn up for opening upwards of 1700 more per
year. Private banks have also started rural branches. A private bank opened 101 rural branches in
December last, across six states
as part of its financial inclusion plan to provide banking services in unbanked
villages.
The government is, separately, aiming at
skilling 500 million youth by 2022 through the ambitious Skill Development
Program. About USD 2.5 billion is spent on training rural
below-the-poverty-line youth.
I am sure that today’s discussions will lay
out the contours of the half a trillion dollar opportunity available to the
private sector to invest in our infrastructure during the next four years as
well as demonstrate how this is going to be a transformational change that will
benefit the lowest rungs of society.
*****
DSM/RS/ka