Following is the text of the Speech of the Union Finance Minister Shri Pranab Mukherjee at Chicago
Council on Global on 28th January,2012:
It gives me great pleasure to be here in Chicago and have this opportunity
to be in this distinguished gathering with leading business leaders from the
corporate world. I thank you for your warm welcome.
2. We meet today at a time
when the world economy is passing through turbulent times. The lingering after
effects of the global financial crisis have of late
become more pronounced. Over the past months, deep and widespread economic
concerns with a complex mix of real and financial problems have surfaced in
Europe. It is a setback to the global recovery. Even
the tepid economic recovery that we have seen so far in some of the advanced
economies is stalling. Unemployment in these economies never quite
recovered from their crisis highs. The relatively robust revival in emerging
market economies is also beginning to falter. The financial markets, which had
never fully recovered from the earlier crisis, are under renewed stress.
3. The current build-up of
concerns has happened despite the aggressive use of both fiscal and monetary
policy tools and our collective resolve to keep markets open. This poses some
serious problems for the policy makers. Going forward it limits our options in
dealing with the emerging situation. While markets are wary of mounting public
debt in the absence of strong growth, significant injection of liquidity by
Central Banks seems to have done little to stimulate lending or borrowing.
Instead we are witnessing damaging spill over consequences, especially on asset
and commodity prices and more recently in the foreign exchange markets that
have strengthened inflation in some emerging markets.
4. We have seen that the
real danger to the global economy lies in the rapid contagion through today’s
globally integrated financial markets. Imbalances even in relatively small
economies can be magnified by integrated financial markets. We cannot afford to
have a piecemeal stop-go approach to address the issues confronting us. At the same time, we need to find a right
balance in the policy corrections to address both the short-term and the medium
to long-term objectives for putting the global economy back on track. In this
context, the opportunity provided by events such as this one, helps to reassure
each other and evolve a coordinated response to further global economic
stability and well-being.
5. Let me turn to the
Indian economy and share with you some of our thinking as we move forward in
the current global milieu. We succeeded in engineering a rapid recovery from
the global economic slowdown by registering more than 8 per cent per annum
growth in GDP in the two years following the crisis impacted year 2008-09.
However, for the better part of the past two years, we have been grappling with
near double digit inflation. Food inflation has been an especially daunting
challenge. The supply response to rising incomes and demand for some food items
has been slow, despite record harvests last year and a promise of another one
in the current agricultural year. We have taken several measures to address
this concern, which should yield desired results in the coming year or two.
6. For most of
this period, our monetary and fiscal policy response has been geared towards
taming domestic inflationary pressures. A tight monetary policy has impacted
investment and consumption growth through higher cost of credit. The fiscal policy
has had to absorb expended outlays on subsidies and some duty reduction to
moderate the pass-through of higher prices of some items including fuel oils to
the consumers. As a result, in the first half of the fiscal year, growth in
private consumption and gross fixed capital formation has been moderate,
resulting in some deceleration in the aggregate demand. The GDP growth in the
first half of 2011-12 is estimated at 7.3 per cent as against 8.5 per cent in
2010-11.
7. Nevertheless,
we have been able to keep the adverse impact of global slowdown and uncertainty
on our economy to the minimum. The key
objective in the current year is to regain the growth momentum, strengthen the
moderation in headline inflation that has dropped to 7.5 per cent in December
2011, rejuvenate the markets and improve the business sentiments which have
been at low levels for most of the last year. The task is not easy in the
present state of the world economy, especially in the Euro zone, given the
downgrades in sovereign ratings and the pressure on the Indian currency, all of
which have a bearing on the capital flows and trade. There are however a lot of positives which
draw on the fundamentals and resilience of the Indian economy. Policy measures
have been taken to mitigate the consequences of adverse global developments and
ensure sustained growth, led by domestic drivers.
8. The
Indian economy is, in some ways, better placed than many other nations to
withstand a fresh round of global economic turmoil. India’s resilience results
from the fact that the bulk of India’s GDP is domestic demand driven. A
calibrated approach to capital account convertibility has, to a significant
extent, prevented rapid surges and reversals of debt creating capital flows.
India’s external commercial borrowings policy that places end-use, all-in-cost
and maturity restrictions, has been successful in maintaining external debt at
sustainable levels. India’s banking sector is robust and export basket is
increasingly diversified with developing countries being our largest export
market. We can also boast of optimal regulatory mechanisms in place that check
unsustainable financial practices, thus ensuring the robustness of the
financial sector.
9. Policy measures have
been taken in recent months to further ease capital controls, making available
a framework for pooling of debt finances for infrastructure and various other
measures which lend credence to our commitment to economic reforms. A Direct Investment Scheme was announced on
January 1, 2012 under which Qualified Financial Investors (QFIs)
will be allowed to invest directly in Indian equity market. This is the first
time that we have taken steps to open up direct access to our capital markets
for the individual foreign investors other than the institutional investors and
foreign venture capital firms.
10. A number of steps have
also been taken to simplify the FDI regime to make it easily comprehensible to
foreign investors. Ownership and control
are now central to the FDI policy, and the methodology in this regard has been
clearly defined. There has been complete liberalization of pricing and payment
of technology transfer fee, trademark, and brand name and royalty
payments. To make the FDI policy more
user-friendly, all prior regulations and guidelines have been consolidated into
a comprehensive document, which is reviewed every six months. We have further
liberalised FDI in single brand retail, but our efforts to open up the FDI in
multi brand retail trading has not been operationalised
yet. We are in the process of building up consensus among the various
stakeholders to take the next steps in that regard. Foreign Direct Investment
(FDI) flows which had considerably slowdown in 2010-11 have bounced back.
11. The
Government has now put in place the New Manufacturing Policy to give a big push
to the manufacturing sector with the objective of increasing its share
in the GDP to 25 per cent and create 100 million jobs in the next ten years. The Policy encourages the setting-up of New
Investments and Manufacturing Zones across the country. These zones would
address the problems of infrastructure, would create world class urban centres
and also absorb surplus labour by providing them gainful employment. We want to
concentrate on building a manufacturing base with the objective of making
Indian industry globally competitive. We are putting in place an enabling
framework for ease of doing business, compliance based on self-regulation,
ensuring availability of skills, technology and finance within a supportive
environment.
12. India is a young nation,
and it has the advantage of demographic dividend over the next two decades.
Empowering the youth of India with adequate skills is the key pillar in this
policy and we have separately earmarked resources for this purpose by way of
creating a National Skill Development Fund. We intend to impart skill and train
150 million persons over the next 10 years in partnership with Indian industry.
13. Rapid development of
infrastructure is the key to sustain high growth and strengthening the domestic
growth dynamics of our economy. The Twelfth Five Plan is therefore, seeking to
continue the thrust on accelerating the pace of the investment in
infrastructure. India needs to invest an additional 3-4 per cent of GDP on infrastructure
or about USD 1 trillion to sustain current levels of growth and to equalize its
benefits over the Plan period. Private sector has a key role to play in
infrastructure building. Our experiment with the Public-Private-Partnership
(PPP) modality for infrastructure development has shown good results. The share
of Private and PPP investments in total investment during the 12th
Plan (2012-17) is targeted to increase to 50 per cent from the estimated 30 per
cent in the 11th Plan (2007-12). The debt requirements for the
Infrastructure sector are very large. We have recently enabled a mechanism of
infrastructure debt funds, as regulated entities, to channelize
funds of long horizon investing entities like pension and insurance funds into
the infrastructure sector.
14. PPP route for investment
in Indian infrastructure represents a commercially attractive opportunity for
foreign investors. First, nearly all the infrastructure sectors allow Foreign
Direct Investment to come in through the automatic route, to the extent of 100
per cent of the investment. Secondly,
India has evolved a stable and transparent regulatory regime in sectors such as
power, telecommunications, ports, airports, petroleum and natural gas, with a regulator
for the coal sector on the anvil.
Standardised and sophisticated contract documentation is in place and
finally, we have established unique and innovative financing instruments such
as a scheme to support Viability Gap Funding (VGF) for PPP projects and special
purpose vehicles (SPVs) for giving long tenor loans
to PPP projects.
15. One of the major fallouts
of the global crisis has been the conscious attempts by governments to take a
critical look at the architecture of their financial systems with an eye on
improving financial stability. There is no one-size-fits-all approach in this
and while the broad principles can be agreed upon, the exact nature of reforms
have to be very specific. We have setup
an apex-level Financial Stability and Development Council (FSDC), with a view
to strengthen and institutionalise the mechanism for maintaining financial
stability, macro prudential supervision and inter-regulatory coordination,
without prejudice to the autonomy of regulators. As a step towards structural
reforms in the financial sector, we are in the process of rewriting and
cleaning up the financial sector laws and bringing them in line with the
present day requirements. A Financial Sector Legislative Reforms Commission
(FSLRC) has also been set up which is expected to produce its report by this
year end.
16. India,
has become the 34th Country Member of Financial Action Task force (FATF). This
membership is very important for India in its quest to become a significant
player in the international financial system.
The FATF process will also help us in co-ordination of anti money
laundering/countering financing of terror (AML/CFT) efforts at the
international level and is again something which increases the attractiveness
of India as an investment destination.
17. I should mention here
that we intend to bolster our efforts to make our growth more inclusive and
more sustainable. Climate change and managing rising energy needs are special
concerns in India and globally. As the recently concluded Durban meetings,
India played a very constructive role, along with our partners including the
United States to ensure that the world continues to make progress. I am aware
that the Council has been a prominent voice on a sustainable future, especially
in the context of the role that the Mid-West region plays. Just as you have
suggested that regional and local action is needed, and that we must strive for
greater energy efficiency and new technologies, so too in India, we are taking
these challenges and responsibilities very seriously. India has one of the
lowest per capita carbon emissions in the world. We are convinced that
inclusive development is actually the most important way to achieve a
sustainable future, even as we seek to reduce the emissions intensity of our
growth path.
18. The global financial
crisis and its after effects have forced many of us to take a re-look at some
of the basic principles of economics and finance. It has generated a fundamental change in the
national mindset and we are all witness to a new world order, which is more
integrated and has a higher degree of interdependence amongst nations. While we
take steps to address the resurgent immediate concerns for the stability and
recovery of the world economy, we need to also move on correcting the
underlying global imbalances. One way of doing that is to leverage global
imbalances to address developmental imbalances. If we need to add demand to the
global economy, to offset the moderation of demand in industrialized countries,
a good way of doing that is to expand infrastructure investment in developing
economies. This suggestion may well be extended to increasing investment in
infrastructure generally, and a more liberal flow of technology to developing
countries, which in turn could spur output and productivity growth in both
advanced and developing countries.
19. Looking
forward, I would say that India’s growth fundamentals are strong and they look
more attractive in a world challenged by problems of confidence and lack of
growth. India’s robust performance in
difficult times makes it a safe haven that global capital is looking for. Even
as we grow and acquire economic strength we are a willing hand in the global
recovery and improved financial stability. India presents opportunity at this
moment that cannot be ignored. I urge you to seize this moment and contribute
to our collective prosperity in the times to come.
The round table meeting was also attended by the Ambassdor
of India in US Ms Nirupma Rao,
Shri Bimal Julka,
Additional Secretary, Department of Econmic Affairs,Ministry of Finance and Consule General of India in Chicago from Indian side. Among
the business leaders from US who attended the meeting included Mr Marshall Bouton, President ,Chicago Council on Global Affirs, Mr Stephen Chipman, CEO,
Grant Thornton LLP, Charles Evans, President and CEO, Federal Reserve Bank of Chicago,Mr Rajeev Gautam,
President and CEO, UOP LLC, a Honeywell Company, Mr James A Gordon, President
and Founder, the Edgewater Funds, Mr Douglas Gray, President and CEO, Everett
Smith Group lTD,Mr Marks S Hopalamazian,President
and CEO, Hyatt Hotels Corporation,Mr Goprdon Hunter, Chairman and President and CEO, Littelfuse,Inc. and Brian Kenney,Chairman
and CEO,GATX,Mr R Paul Kinscherff,
Chief Financial Officer,the Boeing Company, Mr
Jennifer Scanlon, President USG Corporation among others.
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DSM
