The Union Finance Minister Shri Pranab Mukherjee said that one of the defining features of the last two decades has been the gradual shift in global economic power from the developed to the emerging and developing countries. He said that the global economic and financial architecture is transforming and the developing economies are contributing to this churning with their improved economic clout. This is a big change. Indeed, we are all witness to an emerging new world order, where there is a higher degree of interdependence amongst nations and, hopefully, there is also a more dynamic and equitable arrangement for global prosperity, the Minister added.
The Union Finance Minister Shri Pranab Mukherjee said that the global financial crisis that led to an unprecedented economic slowdown compelled us to rethink some of the basic principles of economics and finance, the functioning of financial markets and the global economy. For the first time after the World War II, nations have been forced to come together to explore and discuss the need for collective action, the need to regulate finance in a globalized world and the need to reform the international economic architecture, the Finance Minister added.
The Union Finance Minister Shri Pranab Mukherjee said that leaders of the G20 countries have been discussing global financial instability and the resulting economic slowdown. He said that we are engaged in finding ways to ensure better macroeconomic coordination, regulation of markets, strengthening of the monitoring and response mechanisms to cross-border developments and promoting growth in a sustainable manner. At the same time, countries in the developed and the developing world have adopted revival strategies in keeping with the needs of their respective contexts, the Minister added.
The Union Finance Minister Shri Pranab Mukherjee said that the USA has pursued quantitative easing with a view to boost recovery and reduce their unemployment levels. Recent data shows some signs of improvement, especially in respect of real GDP growth and consumer confidence, even though unemployment rate continues to be a cause for worry. Japan unfortunately is in a similar situation, where in the post-disaster phase it is grappling with reconstruction and rehabilitation requirements of an unprecedented scale, the Minister added. The Union Finance Minister Shri Pranab Mukherjee said that in case of Europe, there are still some concerns, with Greece followed by Ireland and now Portugal seeking help from the European Union and the International Monetary Fund (IMF). He said that there may be other countries in the European Union that may face sovereign debt problems. He said that there are some concerns on the strength of the post-crisis revival in these economies. However, major emerging market economies are experiencing robust growth, though serge in capital inflows and inflation, including from the hardening of global commodity price, is a source of worry, he added. The Minister said that he is hopeful that on the whole, 2011 should see an improvement in the world economy.
Text of the Speech of the Union Finance Minister Shri Pranab Mukherjee made on the occasion is given below:
“It gives me immense pleasure to be present here today to share my thoughts and interact with you on the state of the Indian economy. I am aware you are all senior diplomats, having worked with the government for a considerable period of time, at various levels and in different parts of world. You are here to participate in the mid-career training programme. It is a time to renew friendship, to share experiences with colleagues, to re-energize, and rededicate yourselves to the tasks ahead. It is also a time to learn and perhaps introspect on what has been achieved individually and collectively as a nation, in a period that has been marked by remarkable economic and political changes in the global order.
One of the defining features of the last two decades has been the gradual shift in global economic power from the developed to the emerging and developing countries. The global economic and financial architecture is transforming and the developing economies are contributing to this churning with their improved economic clout. This is a big change. Indeed, we are all witness to an emerging new world order, where there is a higher degree of interdependence amongst nations and, hopefully, there is also a more dynamic and equitable arrangement for global prosperity.
The global financial crisis that led to an unprecedented economic slowdown compelled us to rethink some of the basic principles of economics and finance, the functioning of financial markets and the global economy. For the first time after the World War II, nations have been forced to come together to explore and discuss the need for collective action, the need to regulate finance in a globalized world and the need to reform the international economic architecture.
Leaders of the G20 countries have been discussing global financial instability and the resulting economic slowdown. We are engaged in finding ways to ensure better macroeconomic coordination, regulation of markets, strengthening of the monitoring and response mechanisms to cross-border developments and promoting growth in a sustainable manner. At the same time, countries in the developed and the developing world have adopted revival strategies in keeping with the needs of their respective contexts.
The US has pursued quantitative easing with a view to boost recovery and reduce their unemployment levels. Recent data shows some signs of improvement, especially in respect of real GDP growth and consumer confidence, even though unemployment rate continues to be a cause for worry. Japan unfortunately is in a similar situation, where in the post-disaster phase it is grappling with reconstruction and rehabilitation requirements of an unprecedented scale. In case of Europe, there are some concerns, with Greece followed by Ireland and now Portugal seeking help from the European Union and the International Monetary Fund. There may be other countries in the European Union that may face sovereign debt problems. There are some concerns on the strength of the post-crisis revival in these economies. However, major emerging market economies are experiencing robust growth, though serge in capital inflows and inflation, including from the hardening of global commodity price, is a source of worry. On the whole, 2011 should see an improvement in the world economy.
Against this backdrop, let me now turn to the Indian economy. India is a key player in the evolution of the global economy. It has followed a calibrated approach to globalization, recognizing that while globalization offers new opportunities it also provides new challenges. We have been more fortunate in surviving the global crisis and the economic slowdown of 2008 and other external shocks preceding it without major disruptions. We have recovered our growth momentum much faster than most others. In 2010-11 the GDP growth of the Indian economy is estimated to have been 8.6 per cent, which takes us back on the high growth path that the economy was traversing on in the years prior to the crisis. This resilience demonstrated by the Indian economy in recent times reflects a maturing of the economic management of the country and the growing competitiveness of our enterprise.
Over the last two decade, India’s economy has rapidly evolved. Since about 2003-04, with a step-up in its GDP growth rate, the Indian economy has moved to a higher trend growth rate of around 8.5 to 9 per cent per annum. This has come about due to a significant improvement in our domestic investment and savings rates. There has also been considerable increase in the inflow of foreign capital. This has been important for facilitating the financial intermediation of resources, to meet the growing needs for long term and risk capital, as well as technology for Indian industry.
The economy has come a long way from the so called “Hindu growth rate” when between1950 to 1980, it recorded an average GDP growth of 3.5 per cent. The 1980s and the 1990s saw the average growth rate increase to about 5.5 and 6.5 per cent per annum, respectively. After recovering from the slowdown in the wake of the global financial crisis of 2008, the economy is expected to continue to grow robustly, close to the new trend rate, in the current fiscal year.
The current spurt in growth is bringing about a significant structural change in the economy. The share of industry in GDP has increased from 25.6 per cent in 2003-04 to 28 per cent in 2010-11. There has been a decline in the share of agriculture and allied sectors from over 21 per cent to about 14 per cent during the same period. The rapid decline in the share of agriculture sector in GDP has been appropriated by the service sector, with its share increasing from 52.7 per cent to 57.8 per cent during the period. The Indian economy is being rapidly integrated with the global economy through trade, investment and financial flows. As a proportion of the GDP, India’s merchandise exports and imports increased from 27 per cent in 2004-05 to 34 per cent in 2009-10.
The Indian manufacturing sector has come of age and is making its presence felt globally in the automobile and auto components sector, pharmaceuticals, textiles, steel etc. The services sector, contributing about 58 per cent of GDP has become an important driver of growth. The country’s remarkable progress in developing information and communication technology (ICT) capabilities has resulted in India becoming a global leader in IT-enabled services. Given the young demographic profile, our working age population can become our biggest strength, a source of global competitive advantage in the coming years. In order to exploit this opportunity to the fullest, it is essential to ensure an inclusive development process, with a universal access to basic needs. The thrust on social and human development is an important plank of our next generation of policy reforms, and skill development is high on the government agenda.
There has been considerable improvement in infrastructure, although significant gaps remain. One trillion dollars of investment is required in the infrastructure during the Twelfth Plan period (2012-17). The policy and regulatory hurdles are being addressed and I am sure that the infrastructure deficit will be bridged in the coming years. Our policy thrust in this context is on creating efficient regulatory structures and enhancing investment. In particular, we are emphasizing on effective public-private partnerships, given the difficulties involved in direct government provisioning of many infrastructure services.
Ladies and Gentlemen,
The economic reforms in early 1990s hastened the pace of liberalization starting with the industrial, trade and financial sectors. The decades old license-control raj was abolished and a bigger role was assigned to the market forces in the economy. The focus of policy making shifted from control to facilitation with the objective of creating a conducive environment for industry, trade and services to grow in. This has helped in fostering competition in the markets for products and services. The outcomes from reforms are evident in the sustained improvement in growth of the economy and the efficiency gains realized in sectors that have been liberalized like telecom, and automobiles etc. Our telecom rates are, at present, the lowest in the world.
We are now in the process of deepening policy reforms in the financial sector and addressing gaps in the overall economic regulatory architecture. A Financial Sector Legislative Reforms Commission has been set up to re-write the financial sector laws and bring them in harmony with the new liberalized environment in the country and in keeping with global best practices. The RBI is in the process of issuing additional banking licences to private sector players. To make the FDI policy more user-friendly, all prior regulations guidelines have been consolidated into one comprehensive document, which is reviewed every six months. This has been done with the specific intent of enhancing clarity and predictability of our FDI policy to foreign investors. Discussions are underway to further liberalise the FDI policy. Major steps are being taken to simplify and place the administrative procedures concerning taxation, trade and traffic and social transfers on electronic interface, free of discretion and bureaucratic delays. This will set the tone for a newer, vibrant and more efficient economy.
Changes in the country’s economic space are having a bearing on our mindsets as well. Today, the Indian corporates and professionals see the entire world as their playing field and their thinking and ambition are no longer constrained by national boundaries. The TATA group earns about three-fifths of its revenue abroad and employs more British workers than any other manufacturer.
There are several factors in the performance of the economy in the past year, which, combined with its performance over the past few years, augur well for the Indian economy. The savings and investment rates have reached levels that are reminiscent of the East-Asian high growth economies. As the demographic dividend begins to pay off in India, the savings rate is likely to rise further, provided we are able to create productive employment opportunities. Moreover, the arrival of India’s corporations and its enterprise in the global market place lends to an optimistic prognosis for the economy in the medium to long run. Indeed, I am confident that we are in a position to sustain high economic growth in the coming years and create a more inclusive outcome for our society.
As India goes on to join the league of developed nations, we have to recognise that with power comes responsibility. A seat on the high table comes with attendant responsibilities and that we have to gear-up to shoulder those responsibilities. This is where I see an important role for the Indian diplomacy. While anchoring our foreign policy primarily in the promotion of our national self-interest, we need to engage with our partners in a manner that we create strong mutual stakes in each other’s development process, in general, and economies in particular. In other words, the Indian diplomacy has to acquire a decisive economic perspective to its thinking and strategic approach. We have to ensure that our interests and security are safeguarded and promoted. As a stakeholder in the international system, we need to manage the changes that are underway so that our political and economic interests are not compromised. We have to prepare ourselves strategically and with the help of requisite expertise address the issues before the international community and contribute in shaping a more equitable, secure and progressive world order.
This necessitates an open mind and willing hands to bring about the change and the required momentum in our thinking and in our skills to address these challenges. Let me conclude with these words.”
Courtesy : DDN
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