India’s finance minister weighs in on Indian economy.
By Crystal Tsoi
WASHINGTON, DC: Speaking at the Peterson Institute for International Economics on Friday, India’s finance minister P. Chidambaram weighed in on India’s economy amidst concern of a decelerating economy and its trade relationship with the United States.
Following the finalization of the state budget earlier this year, the finance minister highlighted the success of keeping the fiscal deficit below the promised 5.3 percent to 5.2 percent. At the time of that promise the Indian economy had a fiscal deficit of 6.1 percent.
Among other notable positives of the Indian economy, is the target of achieving the revenue target of 16 percent. However, as the presentation revealed, there are pressing issues facing the rest of the economy.
As the second largest emerging market economy has slowed down from 9 percent to a mere 4.5 percent in the last year, the Indian government has been forced to grapple with endemic issues that are preventing the country from performing at its full economic potential of a steady 8 percent growth.
“It is because we are doing the wrong things and not doing the right things. We have to get a few things right,” Chidambaram said.
India is also currently facing extremely high inflation, particularly a consumer price index (CPI) inflation rate of over 10 percent, a number that Chidambaram called “outrageous.” But, unless the more pressing issue of the fiscal deficit can be brought back down to 3 percent, according to the Finance Minister, inflation cannot be properly dealt with.
“While we pray for a benign world, we must take action ourselves,” he said.
With a backlog of infrastructure projects halted due to problems with land acquisition, environmental concerns, forest clearance, and leakage, the Indian cabinet committee are unilaterally deciding cases in an attempt to resolve issues between conflicting interests.
A plethora of domestic concerns including stalled projects that are locking up crucial manufacturing capital for the country, Chidambaram acknowledged the vulnerabilities plaguing India but also placed such problems on a broader economic context.
“Unless Europe gets its act together, unless major economies show life and growth, how can developing and emerging market economies achieve growth?” he said, underlining the dependency of the Indian economy on foreign direct investment and investment overall.
In the next few weeks, the Indian government will be focusing on three major initiatives: attaining a regulated coal sector, power for the road sector and a rail tariff authority. Establishing a strong manufacturing base is also among the government’s many priorities, a priority the Chidambaram adamantly insist is crucial for the positive development of an emerging economy such as India.
But from a larger standpoint, India hopes to achieve a 5 percent to 6 percent growth rate in the coming year hopefully “climbing ladder one rung at a time,” with a growth rate of over 7 percent by FY2013/14.
Should the flow of capital from other countries stop abruptly due to the precarious health of other major economies, the repercussions would be dire, Chidambaram warned.
Amidst questions about procuring more favorable trade agreements with the United States, the Finance Minister welcomed the prospects of deeper bilateral trade integration though he qualified the enthusiasm with awareness for India’s self-interest.