Millennium Post

Big challenges and road ahead

Prime Minister Manmohan Singh last evening urged upon US companies across industry to take advantage of the latest round of policy liberalisation on foreign direct investment (FDI) to invest in India assuring that the country’s economy would return to the high annual growth mode of eight to nine per cent from the middle of next year as a result of the new initiatives. Singh was addressing a dinner meeting with a select group of chief executive officers (CEOs) and business leaders representing some of the top US transnational corporations, including Boeing, Citicorp, Abbott Pharmaceuticals, PepsiCo, Blackstone and Mastercard International at the New York Palace Hotel. ‘I look forward to hearing from you on how we can further expand our economic relations,’ the prime minister said.

Admitting that the business community in the United States has some concerns about India’s growth prospects, macroeconomic stability and the economic policy environment, the prime minister said it was ‘a mistaken perception’ and he would like to use this meeting to correct it if he could and also understand their points of view.

‘We have an abiding commitment to fostering an economic environment that is open, predictable and transparent, and which is business and investment friendly. We are determined to restore the high momentum of growth of the past decade and maintain macroeconomic stability. We also know that achieving this means more and not less reforms.’ He said that it was a fact that India’s growth rate had slowed down. The country’s economy grew at an average of about eight per cent for a decade. Last year, the growth rate dipped to five per cent.  To some extent, this also reflected the slowdown in the global economy and in all emerging markets. ‘We are committed to getting India back to a sustainable growth path of 8-9 per cent. Indeed, the Indian people will not tolerate anything less. They have tasted the benefits of rapid inclusive economic growth and they want more, not less,’ he added.

The fundamentals of the Indian economy, he said, remain strong.  India’s overall public-debt to GDP ratio has been on a declining trend from 73.2 per cent of GDP in 2006-2007 to 66 per cent in 2012-2013. Similarly, India’s external debt is only 21.2 per cent of GDP and short-term debt stands at 5.2 per cent of GDP. India’s foreign exchange reserves stands at over $270 billion, and are more than sufficient to meet the country’s external financing requirements.

In order to restore growth, the government has implemented a series of reform measures over the last year. It has established a special mechanism to speed up implementation of large projects, especially in the infrastructure sectors. Several decisions have been taken to remove impediments in the way of important projects. The government has taken steps to make India more attractive for FDI. FDI limits have been increased in several sectors, including retail and telecom, and restrictions in the banking sector have been eased. The policy regarding FDI in defence has been clarified to indicate that FDI beyond 26 per cent can also be considered on merits.

The results of these efforts would be visible in the second half of the year. We expect stronger growth in 2013-2014 than in 2012-2013. The second half of the year should see a distinct turnaround, partly because of the good monsoon and partly because of the steps we have taken. The government is determined to contain the fiscal deficit to 4.8 per cent this year. It is also confident of achieving the medium term objective of reducing the Current Account Deficit to 2.5 per cent of the GDP. At the same time, the government would make every effort to maintain a macro-economic framework friendly to foreign capital inflows to enable orderly financing of the Current Account Deficit. A number of tax related concerns of US companies, with wholly owned subsidiaries in India, have been addressed. Some security related restrictions on electronic imports were perceived as disguised protectionism. ‘We have put these restrictions in abeyance and will work to find more acceptable solutions that address our legitimate security needs.

‘I also wish to assure you that India is committed to the protection of intellectual property. We recognise that investment and innovation in a country requires such protection. We have strong IPR legislation in India, consistent with our WTO obligations. We are continually trying to strengthen the enforcement mechanisms. There has been one solitary instance so far of compulsory licencing for an anti-cancer drug and there has been one instance when the Supreme Court of India rejected a patent extension claim on a legitimate ground.

‘I would like to use this opportunity also to urge you to oppose efforts to create barriers for Indian IT
companies through legislative or administrative measures. These companies are the most ardent champions of India-US relations. The IT and related services sector contributes eight per cent of our GDP and 25 per cent of our exports. It employs three million people directly. The inability of IT companies to operate in the US market would not only affect our economy, but also the climate of opinion in India about the economic partnership with the US.

‘Many US companies that have adapted to India, offering products and services that are competitive and innovative, have done very well. I hope you recognise the longer term opportunities that lie ahead. For example, we intend to invest more than a trillion dollars in the next five years in the infrastructure sector. The defence sector is another attractive area, because we will place priority on domestic procurement and encourage our private sector in this area,’ the prime minister added.IPA
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