Following is the text of
the speech delivered by Finance Minister, Shri P. Chidambaram at the
inauguration of the Economic Editors’ Conference, 2005, here today:
“I am
happy to welcome all the participants at this year’s Economic Editors’
Conference.
This
Conference has grown into an important forum for extensive interface between
various departments of the Central Government and the media. Occasions like
this offer the rare opportunity of taking stock of our economic performance,
outlook and the evolving policies. I do hope that the next two days will
witness reasoned deliberations and rich exchange of ideas.
The United
Progressive Alliance (UPA) Government has been in office for eighteen months.
We can look back at this period with considerable satisfaction. Our economic
prospects have brightened. Given the state of economic fundamentals, we are
optimistic of the outlook becoming even brighter in the near term.
Sustained
levels of robust economic growth are absolutely essential for achieving our
goals. For the present, we appear to be firmly on track in this behalf. After
recording almost 7 per cent growth in GDP last year, we have grown by more than
8 per cent during the first quarter of the current financial year. The Reserve
Bank of India has projected the economy to grow at a rate between 7-7.5 per
cent in the current year. We agree with the assessment, and are optimistic of
improving our growth performance over that of the previous year.
Let me explain the
reasons behind our optimism. Initial apprehensions about a contraction in farm
output arising from the delayed onset of the South-West monsoon have turned out
to be wrong. Rainfall during June-September has been 99 per cent of the long
period average. This has put at rest all speculation regarding a setback to
agriculture. The projected Kharif output of food grains at 105.25 million tonnes
during the current year is actually expected to be higher than 103.32 million
tonnes during 2004-05. Our food grains
stocks with the central pool as on 1st October 2005 were estimated
at 15.1 million tonnes (comprising 4.8 million tonnes of rice and 10.3 million
tonnes of wheat), which were marginally lower than the buffer stock norm of
16.2 million tonnes (5.2 million tonnes of rice and 11.0 million tonnes of
wheat). Given the healthy water storage levels in reservoirs, the prospects are
bright for not only kharif, but for rabi output as well. Kharif procurement of
rice as on 14th November, 2005 is 9.3 million tonnes compared to 8.2
million tonnes last year at the same time.
Apart from
agriculture, our optimism regarding overall growth has much to do with the
buoyancy in domestic industry. After growing by a robust 8.2 per cent in
2004-05, industrial output, as measured by the Index of Industrial Production
(IIP), has grown by almost 9 per cent during the first six months of the
current year. The manufacturing sector, which has grown at almost double-digit
rate during this period, has been providing the main thrust to industrial
growth. It is encouraging to note the broad-based expansion in industrial
performance with capital goods, basic goods as well as consumer goods,
performing better than the previous year. Among infrastructure industries,
cement, coal and steel are performing much better in the current year, compared
to the previous year. The upbeat industrial performance has witnessed a rise in
corporate profits and has led to firming up of business confidence
indices. However, the performance of
mining (especially coal) and electricity has been somewhat disappointing,
partly due to the excessive rainfall in some areas. Corrective steps are being initiated to step up mining and
electricity production.
Services,
like in the earlier years, also continue to perform commendably. While in
2004-05, services posted an overall growth of 8.9 per cent, in the first
quarter of the current year, services growth has been nearly 10 per cent.
Trade, hotels, transport and communication are leading the services rally by
recording a growth of 12.4 per cent in April-June 2005-06. Financial services
are also doing well and have recorded a growth of 8.3 per cent.
The
momentum gathered by domestic industry has also been reflected in a sharp rise
in non-food credit growth during the current year. At the end of the first half
of the current year, the year-on-year growth of non-food credit was recorded at
31.5 per cent, which was much above 24.9 per cent recorded during last year.
The credit off-take pattern points to good flow of credit to core industries
like automobiles, coal, electricity, petroleum, roads, steel and textiles.
Among non-farming, non-industrial sectors, housing and real estate has
experienced sharp growth in credit flow.
The
growth in broad money during the year so far has been higher than that in the
previous year. Domestic capital markets have remained buoyant. Stock indices,
driven by strong fundamentals, have been scaling new heights. Foreign institutional investors (FII) have
continued to repose their faith in the Indian capital market with net FII
inflows crossing US$ 4.3 billion during the first six months of the fiscal
year.
The composition of India’s balance of
payments is experiencing a structural shift. After being in surplus for three
consecutive years from 2001-02 to 2003-04, the current account of the balance
of payments turned deficit last year. Such a deficit reflects excess of domestic
investment over domestic savings. It is evident that the pace of expansion of
economic activity has stimulated investment demand from domestic industry,
which has manifested in a sharp rise of imports used by the industry, a large
trade deficit and an overall deficit in the current account. These trends
continue to prevail in the current year as well.
Merchandise
exports are growing at 22 per cent. However, merchandise import growth at more
than 30 per cent has been far higher than that of exports. Balance of Payments
(BOP) estimates also indicate that our receipts from services continue to be
buoyant, primarily on account of robust software exports and steady inflow of
remittances. Among capital flows, gross inflow of commercial borrowings
amounted to US$ 6.1 billion during April-September 2005, which, however, was
somewhat lower than US$ 7.2 billion recorded during April-September 2004. FDI
inflows into India during the same period, however, were higher at US$2.2
billion vis-à-vis US$1.9 billion in the corresponding period of the previous
year. On account of a larger surplus in the capital account, the balance of
payments was in overall surplus during April-June 2005. However, the accretion
to foreign exchange reserves during the period was at a much lower level of
US$1.2 billion, compared with US$7.6 billion in the corresponding previous
period, primarily due to the deficit on the current account.
The
Indian Rupee continues to remain broadly market-determined with the foreign
exchange market witnessing orderly conditions during the year. The evolving
alignments between major global currencies have resulted in a sharp
strengthening of the US Dollar vis-à-vis other major currencies like the Euro
and Pound Sterling. Over the last couple of months, the Indian Rupee has also
weakened against the US Dollar, as a result of these significant changes.
Let me now turn to
one of the major policy challenges that we have been grappling with since we
assumed office. Sustained hardening of international crude oil prices has posed
a major threat to price stability. However, efficient macroeconomic management
has ensured that the adverse effects of high global oil prices do not affect
domestic consumers. Despite aligning retail prices of domestic petroleum
products through partial ‘pass-throughs’, care has been taken to ensure that
the burden is minimised for the poorer sections of the society. Indeed, our
success in containing the inflation rate to below 5 per cent vindicates the
effectiveness of our extant price management policies. The moderate level of
prices has also enabled the Reserve Bank of India to maintain a monetary policy
stance which is aimed at both price stability and promoting growth.
I
must, however, confess that the current state of global crude oil prices is not
only a major worry for us, but for the entire global economic outlook. The
recent assessment of the world economic outlook (WEO) carried out by the
International Monetary Fund (IMF) flags the oil prices as a major risk to
global expansion in the medium term. Leaving aside the escalation in global
energy prices, however, the international economic environment is relatively
benign. According to the latest projections by the International Monetary Fund
(IMF), the world economy is expected to grow by 4.3 per cent in the year 2005.
There are, however, some concerns over the expansion of volume of global trade,
which depends crucially upon the outcomes of the forthcoming Hong Kong
Ministerial of the World Trade Organisation (WTO).
The last financial
year (i.e. 2004-05) was the first year of the
implementation of the Fiscal Responsibility and Budget Management (FRBM) Act,
2003. The progress recorded in fiscal consolidation was quite satisfactory
during the year. Provisional estimates point to a decline of the Central
Government’s revenue deficit from 3.6 per cent of GDP in 2003-04 to 2.7 per
cent of GDP in 2004-05. During the period, the fiscal deficit also declined
from 4.8 per cent of GDP to 4.1 per cent of GDP. Fiscal
indicators of the States point to a substantial reduction in revenue deficit
from 2.2 per cent of GDP in 2003-04 to 1.4 per cent of GDP in 2004-05 (RE). The
States’ fiscal deficit is also estimated to have declined from 4.4 per cent of
GDP in 2003-04 to 3.8 per cent in 2004-05 (RE). The combined revenue deficit of
the general Government has consequently declined from 5.8 per cent of GDP in
2003-04 to 4.1 per cent of GDP in 2004-05 (RE).
The Budget estimates of the States for
2005-06 has sought to carry forward the fiscal consolidation process by halving
the revenue deficit to reach 0.7 per cent of GDP and reducing fiscal deficit to
3.1 per cent of GDP. Centre’s fiscal consolidation process has been slower in
the current financial year (2005-06) owing to the commitments already detailed in
the Budget, arising out of the Twelfth Finance Commission. During the first six
months of the current year (i.e. April-September 2005), the revenue deficit and
gross fiscal deficit of the Central Government accounted for 68.3 per cent and
55.5 per cent of the budgeted estimates, respectively.
The
smooth introduction of Value Added Tax (VAT) system and the management of the
transitional problems are testimony to the commitment of the Government on
fiscal reforms. Available estimates indicate that most of the Indian States
that have graduated to the VAT have experienced higher revenues. The Centre is
fully committed to ensuring a smooth transition of the entire Indian federation
to a uniform VAT by way of assuring financial compensation to loss-making States.
Let me now reflect upon the progress
of policy pronouncements in some key sectors.
Enhancing the flow of credit to
agriculture has been one of our main objectives. Accordingly, on 18 June 2004,
a credit policy package was announced, which envisaged 30 per cent growth in
credit flow to agriculture during 2004-05 (over the previous year) and doubling
of the level over a period of 3 years. The progress in the implementation of
the package indicates that as on 31 March 2005, the total disbursement by all
lending agencies was Rs.1,15,242.81 crore (provisional). This marked an
overstepping of the target for the year by around 10 per cent. As against the
target of Rs.57,000 crore for commercial banks, Rs.39,000 crore for
co-operative banks, and Rs.8,500 crore for regional rural banks (RRBs),
respectively, these agencies disbursed Rs.72,886.26 crore, Rs.30,638.38 crore,
and Rs.11,718.17 crore, thus achieving targets of 128, 79 and 138 per cent,
respectively. By end-March 2005, 79 lakh new farmers were brought under the
institutional fold and 777 agri-clinics were financed. Banks provided debt
relief to the extent of Rs.8,807.48 crore and Rs.2,146.13 crore to
farmers-in-distress and in farmers-in-arrears, respectively. Commercial banks
extended loans worth Rs.57 crore to 16,758 farmers indebted to informal sources
to redeem their past debts.
The Kisan Credit Card (KCC) scheme,
introduced in August 1998, is an important instrument for extending short-term
(ST) loans for Seasonal Agricultural Operations (SAO). During 2004-05, co-operative banks,
commercial banks, and RRBs, respectively, issued 35.56 lakh, 35.49 lakh, and
17.29 lakh cards, respectively. Since the inception of the scheme, a total of
510.80 lakh cards have been issued by the banking system. Among these,
co-operative banks accounted for the largest share (54%), followed by
commercial banks (35%) and RRBs (11%). Andhra Pradesh, Karnataka, Madhya
Pradesh, Maharashtra, Orissa, Rajasthan, Tamil Nadu and Uttar Pradesh have been
the leading States in issuing Kisan Credit Cards and have accounted for 76 per
cent of such cards issued.
We have emphasized on micro-finance
for ensuring that institutional credit becomes available to small farmers
across the country. The National Bank for Agriculture and Rural Development
(NABARD) has been promoting the micro-finance initiative through Self-Help
Groups (SHGs). During the year 2004-05, 5,39,385 new SHGs were credit linked
with banks, as against 3,61,731 during 2003-04, indicating a growth of 49 per
cent over the previous year. The cumulative number of SHGs credit linked
increased to 16,18,476 during the year, while the bank loans extended increased
to Rs.6,898.46 crore during the same period. In this regard, I must mention
that guidelines have been issued for enabling capable Non-Government
Organizations (NGOs) engaged in micro finance activities to raise ECBs under
the automatic route.
The National Common Minimum
Programme (NCMP) of the UPA government has underlined enhancing employment
opportunities as one of its primary objectives. I am glad to report that the
National Employment Guarantee Bill has been passed by the Parliament on August
24, 2005. This scheme will provide
livelihood security to crores of poor people across the country. We are
committed to finding resources and ensuring successful implementation of the
programme. In addition to this scheme, I am happy to report that the coverage
of the Antyodaya Anna Yojana (AAY) has been expanded from 2 crore BPL families
to 2.5 crore BPL families and necessary guidelines for identification of
additional beneficiaries have been issued to all the State Governments on May
12, 2005.
Our progress towards achieving the
Millennium Development Goals (MDGs) will remain stunted unless we take
significant strides in improving primary health facilities in the country. The
National Rural Health Mission (NRHM), which aims to strengthen primary health care through grassroot level
public health interventions based on community ownership, was launched by the
Hon’ble Prime Minister on April
12, 2005. The States have started taking steps for operationalising various
strategies formulated under the Mission. A timeframe has been drawn indicating
start up activities for operationalisation of NRHM both at the Centre and State
levels.
In the last Union Budget
(2005-06), I had mentioned that the universalisation of the Integrated Child
Development Services (ICDS) scheme is long overdue. I had also declared
that it is my intention to ensure that, in every settlement, there is a functional
anganwadi that provides full coverage for all children. The scope of the
Scheme has since been expanded by adding 467 projects and 1,88,168
additional anganwadi centers. I had
also proposed doubling of supplementary nutrition norms under the Scheme and sharing one-half of the
States’ costs for this purpose. For the year 2005-06, 50 per cent of the
Government of India’s share has already been released to the States/UTs and the
balance will be released in normal course.
The
Mid Day meal scheme for children was revamped by issuing revised
guidelines in December 2004. As per the revised scheme, in addition to free
foodgrains and transport subsidy, assistance for cooking cost @ Re.1 per child
per school day is also being provided now to States and UTs. Accordingly the
budgetary allocation for the Scheme for the current year was enhanced to
Rs.3,010 crore. Till now, out of the sanctioned budgetary outlay, Rs.1394.08
crore has been spent which is roughly 46 per cent of the budgeted outlay. Except
five states (Bihar, Jharkhand, J&K, Punjab and West Bengal), all other
States have universalized the programme.
The Sarva
Shiksha Abhiyan (SSA) programme is the
cornerstone of the Government’s intervention in basic education for all
children. The budgetary allocation for the Scheme for the year was increased
from Rs. 4,754 crore in 2004-05 to Rs. 7,156 crore in 2005-06. As on
September 12, 2005, Rs. 3,903.76 crore was released under the programme, which
constituted around 54 per cent of the budgetary outlay for the year.
Extending clean and safe drinking
water to all sections of the population is one of the major MDGs. All drinking
water schemes have now been brought under the Rajiv Gandhi National Drinking
Water Mission. It is
encouraging to note that during the current financial year, till end-September
2005, 26,732 additional habitations have been covered under the Scheme.
Similarly, under the Total Sanitation Campaign (TCS), which now aims to cover
all districts of the country, 42 new districts have been added during the year
so far, taking the total number of covered districts to 494.
As you are aware, we have taken on
the huge challenge of transforming rural India by announcing the ambitious
‘Bharat Nirman’ Scheme. The Scheme has
been conceived as a business plan, to be implemented over a period of four
years, for building infrastructure, especially in rural India. It has six
components, namely, irrigation, roads, water supply, housing, rural
electrification and rural telecom connectivity. There is no need for me to
reiterate the huge funds that are required for implementing the scheme. We are,
however, determined to implement the scheme and have already started exploring
ways of mobilizing fresh resources.
Improving irrigation facilities in the country continues to remain
high on our list of priorities. In this regard, we have reviewed the Accelerated Irrigation Benefit Programme
(AIBP). Our focus is now on early completion of truly last mile projects. Our latest assessment indicates that around 24-30 such projects should
be completed during the course of the year.
In
the latest Budget (2005-06), I had also increased the allocation under Indira
Awas Yojana (IAY), the flagship rural housing scheme for weaker sections.
Against the target of constructing 15 lakh houses under the Scheme during the
current year, till now, about 80,568 houses have been constructed and 4,75,582
houses are under construction at various stages.
Let me now turn to some developments in the
industrial sector. In my latest Budget, I had emphasized upon the need for
upgrading the textile industry so that it is well-equipped to face the
challenges of a post-quota regime. Accordingly, the scope of the Technology Upgradation Fund (TUF) has been enlarged by providing an enhanced allocation of Rs.435
crore. In addition to the benefits available under the TUF, a 10 per cent
capital subsidy scheme for the textile-processing sector has been notified.
Further, we have decided to adopt the cluster development approach for
production and marketing of handloom products, by focusing on 20 select
clusters in the beginning. Necessary guidelines in this regard have already
been issued. The ‘Mahatma Gandhi Bunkar Bima Yojana’ has been launched
on October 2, 2005, for providing life insurance cover up to Rs50,000 for
handloom weavers. A health insurance scheme for the weavers has also been
introduced since November 3, 2005.
In a major initiative aiming to
impart greater efficiency to the banking sector, two amendment bills, to amend
the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949,
have been introduced in the Lok Sabha on May 13, 2005. The Bills
are currently being examined by the Standing Committee on Finance. The Bills
aim to provide flexibility to the RBI to prescribe prudential norms by removing
the bounds on the Statutory Liquidity Ratio (SLR) and the Cash Reserve Ratio
(CRR).
As
I have mentioned on various occasions earlier, our objective is to implement
economic reforms in a manner that is consistent with the basic requirements of
the Indian people. Thus, while we are devoting considerable attention to
removal of procedural rigidities in different sectors for enhancing
productivity, efficiency, and competition, we have not deviated from our thrust
on giving the Indian people a more
dignified and honourable existence. In this regard, we are guided by the
objectives clearly mentioned and outlined in the NCMP.
As I mentioned in
the beginning, I have tried to take you through the progress and performance of
the Indian economy since the time we met last. In doing so, I chose to focus on
the salient developments only. There are several areas which I have not
mentioned in this statement. That is
not to imply that those issues and subjects have been relegated to the
background. I wish to assure this august gathering that we are engaged in
serious deliberations with all stakeholders on practically all policy issues.
I once again
welcome all participants and wish the Conference every success.”
BSC/BY/GN-378/05
(Release ID :13321)