Finance Minister P. Chidambaram has sought to reject the International Monetary Fund’s low growth projection for India, asserting that the country is bouncing back and will grow at over 5 per cent, perhaps coming closer to 5.5 per cent, during 2013-14.
Just as he was flying into Washington two days ago, the IMF released its new World Economic Outlook that slashed its growth forecast for India to an abysmal 3.8 per cent for 2013 – down from 5.6 per cent projected by it just three months ago. Chidambaram, who is here for the annual IMF-World Bank meetings, used his first public address in Washington on Thursday to dismiss the gloomy estimate, remarking: “I know that the World Economic Outlook report does not share my optimism, but I may tell you that we do not share their pessimism.”
“With very good rainfall in the current year and a sharp increase in the sown area, we expect robust growth in farm output,” he said at the Carnegie Endowment for International Peace, adding: “We have also taken numerous reform measures over the past one year. We expect these measures to show their impact from the second half of the current fiscal and believe that the Indian economy will grow at over 5.0 per cent and perhaps closer to 5.5 per cent in 2013-14.”
Set against the current global economic background, even a growth rate of 5.0 per cent looks good, he said but conceded the figure was much lower than the ambitious standards that India had set for itself. “I would be the first person to say that we need to do better and recapture the growth momentum of the last decade,” he said.
At the same time, he took the stand that India’s experience during this period was not unique, asserting: “Virtually all the major emerging economies around the world have seen a sharp decline in growth -- the so-called Great Descent.” He spoke of a pick-up in exports during July-September, a reversal of the negative growth in manufacturing and a reasonable rise in freight traffic.
Asking his audience “not to lose sight of the microeconomic foundations of Indian growth, which are delivering one doubling of GDP every decade”, he said India was set to write a new growth story that would “captivate the world in the next ten to twenty years, as India takes its place as the third or fourth largest economy in the world”. In the light of frequent criticism by Corporate America, among others, of India’s slow reform process, Chidambaram said India has greatly deregulated, but agreed there was much more to be done.
“However, looming large is the issue of State “capacity”. We need a State that has in place institutions to resolve market failures. We need a State that will deliver public goods quietly, efficiently and economically. This is the prime challenge in India today,” he said, adding: “In a liberal democracy, we need to build the full framework of laws that will clearly articulate specific objectives, empower the arms of government that will enforce these laws, and put in place mechanisms that will ensure performance and accountability.”
Chidambaram referred to the “hectic” pace of work to improve the Indian financial system this year, including the drafting of a “single, integrated, coherent, modern financial law” to replace 50 existing laws governing finance, dwarfing the scope of America’s Dodd-Frank Act. Asked about India’s policy on FDI in multi-brand retail in the light of reservations expressed by the likes of Walmart, he spoke of the tendency to keep asking for more. It may not be the ideal policy, but genuine investors would find it worthwhile to turn to India, he said, noting that one or two multi-brand retail chains would enter the Indian market before the end of the fiscal year.