Financial reforms the key

INDIA ECONOMIC SUMMIT 2007

Finance Minister P Chidambaram said India's strength would come from its ability to produce goods and services at lower cost.

Finance Minister P Chidambaram said he expected the investment rate (the ratio of new investments to GDP) to touch 40 per cent in the next five years. He added the government hoped to make some progress on key financial sector reforms in the coming months.

"The investment to GDP ratio stood at 35.1 per cent in 2006-07 and I expect it to go up slightly this year. As long as investment keeps growing, it will create more jobs and more savings, leading to a virtuous cycle of growth. This would allow India to keep growing for the next two decades. Our strength will come from our ability to produce goods and services at lower cost", he said in opening remarks at the Indian Economic Summit 2007, organised by the World Economic Forum.

For the last four years, annual GDP growth rate has averaged 8.6 per cent. However, Chidambaram expressed disappointment at lack of financial sector reforms in the country. "Financial sector reforms are lagging. We need reforms in this sector, in banking, insurance, pension and capital markets. The financial sector is the heart of the economy. We have not been able to push reforms in these sectors", he said, adding that the Congress-led ruling UPA government had 16 months left of its five-year term to make some progress on this front. Key supporters of the ruling coalition - the Left parties - have vetoed most reform proposals in insurance, pension and savings.

In response to another question, Chidambaram said Indian companies would invest more overseas this year than the amount of inward foreign direct investment this year. "Outwards FDI is nearly equal to inward FDI and this year is expected to be even more", he said.

In the five-months till August this financial year (2007-08), the total inwards FDI reached $ 6.44 billion, growing at 86 per cent over the same period last year. In 2006-07, total inwards FDI stood at $15.72 billion, a growth of 184 per cent over the previous year.

"Sectors like refining, steel, pharmaceuticals, maybe aviation, textiles, casting and forging, telecom, shipping, have and will acquire companies overseas in the medium term and take a leading position in the world", Chidambaram said, adding that India had a large and growing manufacturing base. "In five sectors, our companies are among the top 10 in the world. Indian companies are growing organically as well as inorganically acquiring companies all over the world", he said.

Chidambaram reiterated the government's stance that India's per capita emissions were lower than those of developed countries like the United States, which had 20 times more emissions.

"Our offer is that India's per capita emissions will never exceed that of the developed world", he said, days before global climate change talks are scheduled to be held at Bali, Indonesia.

What the FM said

* Our immediate goal is to achieve millennium development goals. India and other nations have fallen behind - we may require three or four more years to achieve some goals. It is in the interest of the world that the goals are achieved by China and India.

* The US will have to tackle its twin deficits, while China needs to have a more flexible exchange rate.

* Only 10 million children are out of school in India, the country can reap the demographic dividend till 2040.

* There is enough precipitation in India, but we have among the lowest storage capacities in the world. We need to store water, recharge groundwater. This can lead to dramatic transformation in our agriculture sector.

* While the government has expanded outlays in sectors like education and health in a major way, the implementation and delivery of programmes continued to be a problem area.

* Very little progress in public-private partnerships, only a dozen projects at present.