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I am delighted to be here for the Economic Times Awards for Corporate Excellence. This annual event provides a valuable opportunity to recognise and appreciate some dynamic and creative entrepreneurs for their outstanding contributions.
I congratulate all the winners of the Awards, and hope that they inspire others to be equally innovative and productive in years ahead.
Six years ago, I was here in Mumbai at an ET Awards function that celebrated 15 years of reforms. The economy was booming and the mood in Mumbai was exuberant. Double digit growth seemed eminently achievable. FDI and FII flows were rising rapidly. Government revenues were buoyant and the fiscal deficit was shrinking. The sense of optimism was all pervading.
Times have changed since then. The global economy is under stress. Growth rates have slowed down everywhere. There is considerable uncertainty about the period over which growth will revive in the industrialised world.
The Indian economy has also been affected by these developments. Our exports have shrunk and the fiscal deficit has gone up on account of a variety of factors. Growth decelerated to 6.5 per cent last year and may be only around 6 per cent in the current year. This has dampened investor sentiment. Doubts are being raised in some quarters about the India growth story going astray.
Economies go through ups and downs and downturns do dampen spirits. However such downturns can have value if they make us focus on the weaknesses that are masked when times are good. India’s slowdown is partly because of the global downturn, but it is partly also because of domestic constraints which have arisen.
We cannot do much about the global slowdown. Though, I dare say, we can certainly make a difference to the world if we do the right things at home to accelerate our own economic growth.
But we can, and we must, correct our own weaknesses, and create new opportunities for economic growth and employment at home. This is the challenge before us. I assure you this will now remain the focus of our policy in the months ahead.
In recent weeks the Government has taken several steps with these objectives in mind. Our objectives have been the following:
(a) To stabilize government finances and make the fiscal deficit more manageable, so that higher growth is possible and sustainable;
(b) To make this growth process socially and regionally more inclusive and equitable. The key pillars of inclusive growth are new employment opportunities and a lower rate of inflation;
(c) To step up public investment as well as public-private partnerships, especially in infrastructure;
(d) To tap into available capital and technology from around the world that seeks investment opportunities in India;
Towards these ends, we have taken several steps in the past few months. Some of the steps were considered by many of our critics as politically impossible. We bit the bullet and did what we felt was the right thing to do. Undoubtedly, more needs to be done.
Bringing the fiscal deficit under control is an essential element in restoring investor confidence. The Finance Minister has announced a roadmap to reduce the fiscal deficit from a projected 5.3% this year to 3% by 2016-17. The action taken recently to reduce fuel subsidies must be seen in this perspective. These were politically difficult decisions but we did what was right. We are also mindful of the effects such steps have on the poor and vulnerable and we will take all possible measures to protect their “lifeline” needs.
Certain tax measures in the Budget led to a very negative reaction from investors. We addressed investor concerns by appointing the Partho Shome committee to look into the implementation of GAAR and the tax treatment of certain investments. We also appointed the Rangachary committee to examine tax related issues for the IT sector. The recommendations of both committees have been received and are being examined by the Finance Ministry. We hope to announce decisions on all these issues within the next few weeks.
One of the major negative features of the present situation is that a large number of infrastructure projects are stuck because of the delay in granting various clearances and the non-transparency in determining the conditions under which clearances can be given. We are looking at ways to speed up clearance processes and making them more transparent.
Ramping up of investment in infrastructure is critical for reviving the growth momentum. The 12th Plan has a target of investing almost a trillion dollars in infrastructure. Investment in infrastructure has to be in the vanguard of public investment for many years to come and we are working in that direction. However, about 50 percent of the investment needed in infrastructure has to come from the private sector. We have set ambitious targets for the infrastructure sector and ministries are being monitored regularly to see that they perform as expected. Iconic projects are being taken up including an Elevated Rail Corridor in Mumbai; new locomotive plants; two new major ports in AP and WB; new airports in Navi Mumbai, Goa and Kerala; five new international airports; and, a policy to make some of our airports into international hubs. We are also looking to quickly implement important urban projects including the Mumbai Trans-Harbour link while launching a JNURM-2 in the 12th Plan.
In the power sector, fuel supply has been a problem. In fact, the pricing system across the entire chain in the power sector needs to be rationalised. We are tackling these problems by ramping up coal production and promoting pooling of imported coal.
In gas, fresh sources of supply are being tied up to counter the fall in domestic production. We are helping state power distribution companies by offering a restructuring package which was recently approved.
Many infrastructure projects are suffering from financing difficulties. The roads and power sectors are particularly affected. In roads, the problem is that the low hanging fruit have been plucked and we have to now build less viable roads. These require new approaches and these are being finalised. In power, the finances are affected by the lack of fuel supply and also the financial difficulties of state discoms. These problems too are being addressed.
Let me say a few words on our approach to foreign investment. There has been some ill-informed criticism and questioning of the government’s intentions and motivations. Let me be candid. A combination of difficult global market conditions and rising commodity prices, especially that of petroleum products, had pushed the current account deficit beyond an acceptable level.
It is difficult to reduce the deficit in the short run because our exports may not grow very rapidly whereas our efforts to raise the investment rate will mean higher imports. FDI is perhaps the best source of external financing to finance the deficit. It is more stable than other forms of inflows and it brings in many externalities such as know-how and access to global supply and marketing chains. We recently liberalized FDI in retail, aviation, insurance, power exchanges and broadcasting.
Some people still try to make FDI into a bogey even invoking fears of the East India Company. In democratic politics any action of the government should be open for scrutiny and criticism. But our experience should teach us not to be fooled by naysayers and Cassandras of doom. Indian industry has responded to the opening of the economy in ways which were not easily foreseen.
This room is full of entrepreneurs who have transformed their firms into world-class operations with high levels of efficiency and productivity. Some of you have also ventured into foreign lands, making your firms MNCs. We welcome Indian companies developing a footprint abroad even as we welcome foreign firms coming into India.
Monetary policy has an important role to play in keeping inflation under control while also supporting growth. The Reserve Bank of India has sought to support a revival of growth by reducing the CRR successively over two quarters. Central banks have to balance the compulsions of stimulating growth and controlling inflation. Both are important. But we must recognize that lower inflation is good both for growth and for making growth more socially inclusive.
The financial sector plays a critical role providing opportunities for instruments for financial investment by our savers and channelling these savings into productive investments. The Cabinet has approved changes in the Banking and Insurance laws and also a new pension law, with higher FDI limits. It will be our endeavour to have them passed by Parliament as soon as possible. They will make our financial system more able to support growth.
SEBI has been working to improve procedures and policies to reduce transaction costs in our capital markets. IRDA is addressing the challenges facing the insurance sector and increase insurance penetration levels. Policies on External Commercial Borrowings and other rules are being modified to enable easier access to capital, including especially long term debt.
The pursuit of inclusive growth depends critically on making banking facilities accessible to millions of our countrymen. The Unique ID program providing Aadhaar numbers for all residents is going to be the basis of the biggest transformation that is going to take place in the way transactions are conducted. The government intends to roll out Aadhaar based services rapidly so that benefits like scholarships, pensions, health benefits, MNREGA wages and many other benefits are transferred directly into bank accounts using Aadhaar as a bridge.
This will bring in crores of people into an automated financial transaction system. It will eliminate middlemen, cut down leakages and target beneficiaries better. It will also enable an expanded programme of cash transfers in lieu of physical distribution of subsidized commodities.
The proposed Goods and Services Tax is another major reform in the pipeline. We are making efforts to build a consensus on GST and hope that the Opposition sees the importance of GST for the nation at this stage. We recognize that the Opposition has a role to play in criticizing and opposing the government. We will listen carefully to their suggestions, but in this case, where national interest is paramount, I hope they will cooperate in passing the necessary legislation.
Lastly, we are taking steps to ensure that we are able to capitalise on the demographic dividend that is expected. Skill Development, expansion of secondary and higher education and better healthcare facilities will all contribute to a fitter and more skilled workforce which can then look forward to gainful employment opportunities.
Last year, this newspaper presented a 10 point Agenda for Renewal and Reform. If you look at this agenda, you will see that we have moved forward on most fronts in a substantive way. We have "dispelled gloom & doom", improved the "climate for foreign investment", improved "ministry coordination", and are working hard to "restore investor confidence and the growth environment". We have taken significant steps in resolving "energy & power" problems and tackling "urbanisation" issues and improving the "PDS". I hope we will get some editorial approval for this!
I have often said that investment is an act of faith. But I must emphasise that there are two sides to that faith. You, as entrepreneurs and risk takers, must have faith in our policies and their ability to sustain high growth. Equally, the people of India too have to have faith in our ability to ensure that the gains from growth are equitably distributed. That requires that employment opportunities are created on a large enough scale, that inflation is kept under check, that the government raises and expends revenues transparently and equitably.
Over the past decade, we have been experiencing in this country and around the world a ‘revolution of rising expectations’. This has, on the one hand, unleashed new energies in our society and, on the other, fostered an atmosphere of great impatience and cynicism. This is a challenge that all of us must deal with, together, so that we can socially and politically sustain an environment conducive to higher economic growth and the full flowering of Indian enterprise.
I hope those being celebrated at today’s event will inspire greater effort in this direction. I conclude by conveying to the people of Mumbai my warmest greetings and best wishes for a very happy Deepavali.