India today outlined a new strategy of expanding investment demand, with a view to expediting the process of the ongoing global economic recovery.
In his remarks at the opening plenary session of the G-20 summit here on Friday, Prime Minister Manmohan Singh said: “A strategy of expanding investment demand in developing countries to replace lost export demand will not only help growth in developing countries, it will also contribute to a broader global revival.”
Singh argued that such a strategy would work because the import content of investment was typically higher than exports, which meant a significant percentage of the initial increase in demand would spill over into the global economy.
The prime minister pointed out that a depressed state of the global economy had resulted in a considerable loss of export demand for the developing countries (exports of non-oil developing countries were likely to fall by $900 billion in 2009) and this was bound to reduce their production, incomes and employment. The financial transfers planned so far would only help the developing countries to manage their balance of payments at depressed levels of economic activity. They could not be expected to counter the effect of export losses, he said.
It is in this context that Singh called for expanding investment, particularly in infrastructure areas like energy, transport and public services in developing countries. “These investments can be made ahead of requirements and therefore are an ideal form of countercyclical activity,” he said.
Singh’s remarks were significant for two other reasons. One, there was no mention of climate change, even though this was an issue that was discussed at the meeting and even found a mention in the draft declaration. Two, he reiterated the Indian government stand that there was no need for any premature withdrawal of stimulus measures. He said the time for such withdrawal was not now, a concern that got addressed in the draft declaration of the Summit.
Singh also called upon the World Bank and other regional development banks to play a major role by financing such investment, particularly for developing infrastructure in the emerging-market economies. “These countries have relied on the capital markets in more normal times, but will need support in the medium run, till capital markets recover,” he said.
The prime minister welcomed the recent World Bank announcement to increase its overall lending to $100 billion. But he argued that this would not be adequate to meet the lending requirements of the developing countries and therefore was not acceptable. The way out was to at least double the capital of the World Bank and other regional development banks.
He decried the tendency to deny additional funds to these institutions on grounds of inadequate availability of public resources. “We must keep in mind that what is needed (for these institutions) is small, compared to the massive scale of public money used to stabilise the private financial system in industrialised countries,” he said, in a clear hint on the way the US and many other developed countries doled out huge public resources to bail out private financial sector giants from their crisis last year.
The prime minister argued that the developing countries were the hardest hit in the ongoing global economic crisis, although they were not responsible for it. Their annual gross domestic product (GDP) growth was expected to decline from an average of 6.5 per cent in the last seven years before the crisis to 1.5 per cent in 2009. An estimated 90 million people in the developing world were likely to be pushed below the poverty line. If this was allowed to happen, the national consensus in support of the much-needed structural reforms and adjustment would be undermined, he feared.
India to grow at 6.3% in 2009-10: PM
Prime Minister Manmohan Singh’s remarks at the plenary session of the G-20 Summit here on Friday had a few important pointers for the Indian economy.
He stated that India’s economic growth was expected to be 6.3 per cent in 2009-10 and about 7-7.5 per cent in 2010-11. In 2008-09, the Indian economy grew by 6.7 per cent, down from an average annual growth rate of about 9 per cent in the four previous years.
The 2009-10 growth projection marked an improvement over the Reserve Bank of India’s assessment in July that economic growth in the current financial year was expected to be 6 per cent “with an upward bias”.
Singh said India was adversely affected by the global downturn, but it had weathered the crisis “relatively well, given the circumstances”. The relatively strong performance in the last year and this year, in spite of the global meltdown, was partly due to the strong stimulus measures introduced in the second half of 2008-09, he said.
