India-America Chamber of Commerce hosted Jaitley.
AB Wire
The India-America Chamber of Commerce (IACC) hosted a reception in New York City for Arun Jaitley, the finance minister of India, during his recent visit to United States for the bilateral annual yearly financial and partnership meeting with the secretary of treasury in Washington DC.
“India has emerged as a major growth engine of the world, “said Rajiv Khanna, President of IACC and Partner of BakerHostetler in his opening remarks, at the meet held at Tulsi restaurant in Manhattan.
Khanna highlighted the finance minister’s achievements and records over the last two years: reduction in fiscal deficit; controlling Inflation; foreign direct investment has gone up by over 40%; GDP growth rate has gone up by more than 2%; and progressive opening of the Indian economy to foreign direct investment and liberalization of the controls that were choking its growth.
“According to the CFA Institute, the global economy is expected to grow at growth rate of 2.6% in 2016. The United States is expected to contribute 42% of this global growth, China is expected to contribute 28% of this growth, India is expected to contribute 25% of this growth, Germany is expected to contribute 3% of this growth and the rest of the world is expected to contribute 2% of growth. In other words, while most of the world is struggling with negative growth rates, India has emerged as a major growth engine of the world,“ said Khanna.
“Two years ago, when Arun was sworn in as the Finance Minister of India, the fiscal deficit of India was about 4.5%. Today, it is 3.99%. This reduction in the fiscal deficit has taken place in spite of significant and continuous reduction in tax rates in India,” said Khanna.
“When Arun became the Finance Minister, India was plagued with high inflation as a result of which India’s inflation hawk federal reserve would not even think of cutting down interest rates, thereby plaguing the industry with high interest rates at a time when it needed a financial breather. Today, the inflation in India is under control. In the last 16 months, the wholesale index has been mostly negative and the consumer index has been in the range of 4-5%, which has persuaded India’s tough federal reserve to bring down the interest rates, which in turn will spur further growth in India,” he added.
In his remarks, Jaitley said: “The whole world is facing serious challenges and so is India. Today, no one can ignore the fact that we have a large population and significant part of that population still suffers from poverty. However, the growth does not necessarily mean affluence for some, growth in India is necessary because the benefits of that growth have to first move towards poverty eradication, growth generates wealth and that in turn gets used for all segments of the society. Particularly, the Indian model has been not only about percolating down to weaker sections but states with enriched revenues that have to formulate poverty eradication programs to further help the weaker sections of the society.
So, without growth, we will only have empty slogans, the kind we had in 1970s where we had very progressive slogans but were growing only by about 2.5%. And the world use to ridicule our growth by calling it the Hindu rate of growth. Though in the last two decades the situation has substantially changed, India has huge potential for pushing up growth on the strength of economic activity.”
He stated further, “we should bear in mind when Rajiv was giving figures of what various countries in the world contribute to global growth –China for almost three decades grew at an average of 9.5% and for 30 years to grow at that pace, it did shoulder about 50% of the global growth and that is something that cannot be indefinitely expected. The Chinese model, which has been a state driven growth model, rather than an entrepreneur driven model of growth, is of course facing its own challenges of excess capacity. It was export based and with the slowdown of global economy obviously the export world has shrunk, trade has shrunk and China therefore is going through a transformation and in that transformation they now believe that they may switch over to a domestic consumption economy rather than only export. But this transformation will obviously take time and therefore the Chinese did believe last year that the new Chinese normal was 7.5% growth. It has come down to 7% but now the current data indications are that it will be below 7%. In the first quarter, they claim to be grown by 6.7%. India is much smaller economy compared to China and certainly the US and will therefore grow much faster.
“If we drew a line through the geography of India passing through the center of the country the bulk of the economic activity is to the west of that line, if you go to east of that line, whether it’s Utter Pradesh, Bihar, Bengal, north-east parts of Orissa, significant growth is yet to touch these areas. Therefore, geographically we have a region which has a huge potential. It can grow in agriculture, it can grow in services, it is also a mineral rich area, and when you exploit these potential, these areas have a tremendous opportunities.
“Women in India have been mostly home makers and therefore their potential contribution to the GDP in terms of an evolving work force is very significant and you can see social, gender and geographical instruments available to us to grow. Expect services, we haven’t realized our full potential and that is why I think one of the key areas of emphasis we have now is one that you must concentrate on, agriculture – 15% of country’s income come from agriculture, about 55% people are involved in it. Over the next 20-30 years, we have to take large chunks of people out of this sector, we have to add to rural infrastructure, we have to add to irrigation, electrification and otherwise empower this sector.”
Jaitley further discussed with the audience the Mudra scheme which was another driver of growth –“Banks must start giving micro finance at modest interest rates without security, and about 70% of these loans have been taken by women.”
He added: “As far is the world is concerned – I have said the situation is still very grim. At all the international forums and at the global economic forums that we have been attending, everyone seems to be aware of these challenges. And there is a lack of clarity as to how quickly the world will get out of this, when growth will return to the world. The whole economic picture of the world is changing. Countries are still struggling with new regime of low commodity prices, low oil prices, which in fact becomes a transfer of resources, transfer of wealth from the producing nations to consuming nations.”
He concluded his speech by saying, “for a society like India where domestic consumption is very large, we have to use economic instruments available within the country. For example: emphasis on increased public spending; large government expenditure in infrastructure and irrigation; this year 233 highways are under construction; 400 railways have been reconverted and rebuilt by private sectors; 700,000 roads being linked to highways and stronger roads; new ports and airport activations; and Affordable housing in slum and rural areas.”