GOVERNMENT IS MAKING EVERY EFFORT FOR TURNAROUND OF THE ECONOMY AND CREATING INVESTOR FRIENDLY CLIMATE - FINANCE MINISTER
December, 15th 2012
PRESS INFORMATION BUREAU
GOVERNMENT OF INDIA
GOVERNMENT IS MAKING EVERY EFFORT FOR TURNAROUND OF THE
ECONOMY AND CREATING INVESTOR FRIENDLY CLIMATE - FINANCE
New Delhi, Agrahayana 23, 1934
December 14, 2012
The Union Finance Minister Shri P Chidambaram has said that the Government is
making every effort for turnaround of the economy and creating investor friendly climate. He
further stated that external sector vulnerabilities are affecting the Indian economy because of
the rapid globalization of the economy. Shri Chidambaram was delivering this inaugural
address at the Delhi Economics Conclave in New Delhi today. Following is the text of his
i. "I welcome you to the Delhi Economics Conclave organized by the Ministry
of Finance in collaboration with National Institute of Public Finance and
Policy (NIPFP) and Confederation of Indian Industry (CII). Let me
congratulate the team in the Economics Division for organizing this conclave
for the third successive year and thank NIPFP and CII for their support and
cooperation. I understand that, besides the plenary sessions on the first and
second days, there are satellite conferences organized by other organizations
as part of this Conclave. Let me offer my thanks to those organisations too.
ii. The theme of this conclave is "Reviving Growth". Nothing can be more
topical. As far as I know, this is the subject that is engaging the attention of
all countries of the world. Be it the G-7 or the G-8 or the G-20 or the G-24
comprising the developing countries, at every forum the prime topic of
discussion is how to revive global growth. The world economy is passing
through its most difficult phase since 2008. The Euro zone as a whole is,
technically, in recession with negative growth in the second Quarter and the
third Quarter of 2012. Growth in the US has too slowed as a result of political
uncertainty over the "fiscal cliff". Other major economies such as Japan and
Brazil have seen their growth stalled.
iii. The emerging economies are affected not only because of the fall in
international demand for their products, but also because of the severely
diminished policy space they have to stimulate their economies after the crisis.
Higher inflation and higher fiscal deficits make it hard for the emerging
economies, with few exceptions, to resort to standard counter-cyclical
iv. The immediate fallout has been a sharp deceleration in global economic
growth. As per the IMFs World Economic Outlook, October 2012, growth in
world output is expected to decrease to 3.3 per cent in 2012, from 5.1 per cent
in 2010 and 3.8 per cent in 2011. Advanced countries, as a group, are
expected to grow only by 1.3 per cent, down from 3.0 per cent in 2010 and 1.6
per cent 2011. Emerging market and developing economies are expected to
grow by a modest 5.3 per cent, as against 7.4 per cent in 2010 and 6.2 per cent
in 2011. There has been a sharp decline in growth all over the world since
v. Global trade has also been affected. The volume of world trade (goods and
services) is expected to grow by 3.2 per cent in 2012, after growing at 12.6 per
cent in 2010 and 5.8 per cent in 2011.
vi. Indias GDP growth that was 8.4 per cent in 2009-10 and 2010-11, slipped to
6.5 per cent in 2011-12, partly due to the fallout of the euro zone crisis. A
closer look reveals that the slide in growth is correlated with the
intensification of the euro zone crisis, which began worsening towards the
middle of fiscal 2011-12. Since the first Quarter of 2011-12 when the GDP
grew at 8.0 per cent, there has been a secular decline in the growth rate in
every successive Quarter. The growth rates in Q I and Q 2 of the current
fiscal (2012-13) have been 5.5 per cent and 5.3 per cent respectively.
vii. The performance of Indias external sector has also not been encouraging.
The countrys trade deficit was 10.3 per cent and the current account deficit
4.2 per cent of GDP in 2011-12. This was because, while export growth
slowed considerably, imports continued to remain high due to high
international oil prices and gold imports. This is unlike the situation during
the 2008-09 global crisis. At that time, oil prices plunged following the
collapse of Lehman Brothers in September 2008. Further, the decline in
imports was sharper than the decline in exports. In my view, the present
challenge is therefore different and calls for bold and innovative measures.
viii. External sector vulnerabilities are affecting the Indian economy because of the
rapid globalization of the economy. The economy is more open. This can be
gauged from the fact that the trade in goods and services, which was 22.9 per
cent of GDP in the 1990s (i.e. the average for the decade), increased to 55.7
per cent of GDP in 2011-12. Similarly, payments and receipts on the capital
account, which were at 15.1 per cent of GDP in the 1990s, increased to 48.2
per cent of GDP in 2011-12. As a result, global developments have an
increasingly larger impact on the Indian economy through the trade and
capital account channels. Besides, in the global environment of uncertainty
and low investment, the impact is also transmitted to the economy through the
ix. In such a situation of uncertainty and low investment, Government has been
making every effort to turn the economy around and create a more investor-
friendly climate. We have taken a number of steps to encourage foreign direct
investment, including allowing, recently, FDI in multi-brand retail, civil
aviation and some broadcasting services. Against considerable opposition, we
also raised the prices of certain petroleum products in order to contain the
subsidy bill and to discourage over-consumption. We have initiated measures
to move all cash benefits to a technology-enabled platform so that the benefits
are transferred directly to the bank accounts of the beneficiaries; we expect
that the Direct Benefit Transfer Scheme will be a game-changer and will
eliminate nearly all leakages, duplication and falsification and bring a greater
degree of transparency and efficiency. We are also addressing some tax
issues that have created uncertainty in the minds of the investors and we have
made it clear that our objective is to have clarity in tax laws, a stable tax
regime, a non-adversarial tax administration, a fair mechanism for dispute
resolution, and an independent judiciary. Yesterday, the Cabinet took some
important decisions. Among them was a decision to set up the Cabinet
Committee on Investment to quicken the pace of decision making in critical
infrastructure projects. The Cabinet also approved a landmark draft Bill on
Land Acquisition and a new investment policy for urea plants.
x. It is too early to say whether the measures have begun to bear fruit, although it
is our expectation that they will do so. Manufacturing PMI has risen to a 5-
month high. Foreign portfolio capital inflows have been robust in the last few
months, amounting to USD 21 billion up to November 30 this calendar year.
The stock markets leading indices have risen by about 11.5 per cent between
August 1 and December 13, 2012, pointing to growing investor confidence
and the return of the small investor. While headline inflation has moderated to
7.5 per cent, inflation measured by the consumer price index remains sticky at
9.9 per cent. There is no reason at all to become complacent.
xi. What scope is there for international co-operation in reviving growth,
the theme of this conference? In their declaration at Los Cabos earlier
in the year, G-20 leaders declared that "all G20 members will take the
necessary actions to strengthen global growth and restore confidence."
Dr. Manmohan Singh, Prime Minister of India, said at Los Cabos,
"Infrastructure investment in developing countries assumes special
importance in this context. It lays the foundation for rapid growth in the
longer term, while providing an immediate stimulus for their economies and
also for the global economy, by providing a robust source of demand."
He added, "An expansion of investment in infrastructure in developing
countries is only possible if they can get access to long term capital to finance
such investment. This is difficult at a time when capital flows are disrupted.
The Multilateral Development Banks can play a major role in this context."
xii. I would like to remind this Conference that the G-20 Leaders asked their
Finance Ministers and Central Bank Governors to consider ways in which the
G20 can foster investment in infrastructure and ensure the availability of
sufficient funding for infrastructure projects, including financing and technical
support by the Multilateral Development Banks (MDBs).
xiii. However the fiscal challenges faced by the advanced economies give them
little appetite to shore up the resources of the MDBs. On the other hand, gross
savings as a share of GDP have increased significantly in a number of the
Asian countries who are members of G20. Keeping in mind these realities, I
propose that the Asian G-20 countries, including China, Japan, South Korea,
India, Indonesia, Australia and possibly Russia, should take the initiative to
enhance the resources of the leading MDB in the region, the Asian
Development Bank (ADB). The ADB plays a crucial role in regional
investment and development. If we do that, the ADB will be in a position to
play a greater and more defining role in regional infrastructure financing,
which in turn will allow countries like India to contribute to a greater degree
to domestic and world growth. I appeal to the Asian G-20 members to come
together in an effort to increase the resource base of the ADB so that we can
co-operatively carry forward the G-20 agenda.
xiv. India weathered the crisis very well in 2008 and I am confident that the steps
we have taken and some more steps that we will take in the next few weeks
- will help turn the Indian economy around. However, every country has to
introspect on whether the domestic and external issues have been diagnosed
correctly and whether the policy options have been exercised adequately and
effectively. What are we missing and what else do we need to do to ensure
sustainable growth in the coming years? I am sure with the distinguished
group of invited speakers with diverse backgrounds, the questions discussed
in this Conclave and the answers that will be thrown up will serve as useful
policy inputs for us in the Government, especially the Ministry of Finance.
xv. Let me once again congratulate the organizers in bringing together a galaxy of
experts from different areas and from different parts of the world to discuss
the crucially important issue of how to revive growth.
Organised by the Department of Economic Affairs, Ministry of Finance Ministry,
Government of India the opening session of the conclave was attended by Shri Tharman
Shanmugaratnam, Deputy Prime Minister and Finance Minister, Singapore, Shri Pravin J.
Gordhan, Finance Minister, South Africa and Dr. Sarath Amunugama, Senior Minister for
International Monetary Cooperation & Deputy Minister of Finance and Planning, Sri Lanka,
Dr. C. Rangarajan, Chairman, Economic Advisory Committee (EAC) to PM, Dr. Arvind
Mayaram, Secretary, Economic Affairs, Dr. Raghuram G. Rajan, Chief Economic Adviser
besides delegate from India and abroad. The theme of this years Conclave is ,,Reviving
The conclave will be continuing till December 21, 2012. After the plenary sessions
during the first two days, satellite conferences will be held on various issues related to
finance and economy.