The Indian economy has been able to fare well in spite of the adverse impact of the global economic crisis, due to the strength of its domestic demand, said Mr. Pranab Mukherjee, Minister of Finance, India, addressing the session titled “Post-Crisis Economic Order: How can Free Market and Control be Balanced?” at the 25th India Economic Summit, jointly organized by World Economic Forum and Confederation of Indian Industry in New Delhi. He said the stimulus packages provided by the government have been aimed at increasing domestic demand in the face of a global recession. This stimulus needs to be maintained for some more time till a robust recovery in developed nations takes place, he said, pointing to the continuous decline in exports that has been experienced by the country since September 2008. Developed markets constitute 60 per cent of our export market and it is not easy to diversify in the short-term, he added.
He said that GDP growth will return to the 9-10% growth trajectory by 2012. In the short-term, the lack of external demand and the poor performance of agriculture may be a constraint to achieving a higher growth rate. He outlined three areas as his priority for keeping domestic demand strong in the near-term: innovation in agriculture, investment in infrastructure and maintaining an appropriate fiscal and monetary policy. He said that while he had significantly increased allocations to all flagship schemes for rural areas, infrastructure growth would be funded through the PPP route.
He said that fiscal consolidation is imperative for India in the medium term and that he had set a target of reducing the fiscal deficit from 6.8% of GDP in the current year to 4.0% by 2011-12. While the RBI has successfully been able to raise resources for the government without crowding out private sector credit, such tight-rope walking cannot continue.
He expressed optimism that the collective determination of global leaders will address the problems faced by the international community so that the multilateral negotiations on trade and climate change can be successfully concluded. Meanwhile, the issues of stimulus and exit strategy as well as the new international financial architecture were being worked on by the G-20.
Mr Venu Srinivasan, President, CII, and Chairman and Managing Dierctor, TVS Motor Company, India, applauded the visionary measures taken by the Minister against the challenging backdrop of the global meltdown. He pointed out important measures that are being implemented, such as the Goods and Service Tax (GST) and Direct Tax Code, which will go a long way in simplification of tax regime. Talking about regulations, Mr Srinivasan said that both an overly regulated market and one without regulations can stifle growth, and therefore CII believes in maintaining a balance between the two.
Ms Chanda Kochhar, Managing Director and Chief Executive Officer, ICICI Bank, India; and Co-Chairman of the India Economic Summit, highlighted factors that contributed to economic stability in India amidst the worst crisis since the Great Depression. She said that stable and timely government policies, self regulation by Indian banks and the fact that Indian consumers were not overly leveraged, contributed to stability of the economy.
Ms. Kochhar pointed out that, going forward, India’s growth story will be driven both by domestic consumption and investment, as long standing investment projects, which were held in abeyance, are again becoming operational. She concluded by commending the Finance Minister on his message that protectionism cannot be the answer to the problems being faced by the global economy today.