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India’s FM gives USA’s IMF some lessons in economics

Dismissing International Monetary Fund’s (IMF) growth projection of 3.75 per cent for India as pessimistic, Finance Minister P Chidambaram has said the country’s economy is expected to grow by 5 to 5.5 per cent in the current financial year (2013-14) on the back of a good monsoon, robust farm output and impact of reform measures undertaken by the government in the past one year.

‘We expect these measures to show their impact from the second half of the current fiscal and believe that the Indian economy will grow at over 5 per cent and perhaps closer to 5.5 per cent in 2013-14,’ he said, in his address to the Carnegie Endowment for International Peace, an eminent US think-tank.

‘I know that the World Economic Outlook report (of the IMF) does not share my optimism, but I may tell you that we do not share their pessimism,’ Chidambaram said highlighting six key fundamentals of the Indian economy including the financial system, skilled workforce and strong corporates that have been contributing to the country’s growth momentum.

‘Set against the current global economic background, even a growth rate of 5 per cent looks good, but it is much lower than the ambitious standards that we set for ourselves in 2004,’ he said.

The Washington, DC-headquartered  IMF, which was initiated at the 1944 Bretton Woods Conference and created in 1945 ostensibly to assist in the reconstruction of the world’s international payment system after World War II, has served as a consistent weapon for the promotion of the US-led Western nation’s economic interests in underdeveloped countries.

Chidambaram said, ‘Every year, our financial system is getting better and stronger and through this, we expect to translate our good investment to gross domestic product (GDP) ratio into a higher GDP growth rate.’

Defending the government’s foreign direct investment (FDI) policy amid reservations being raised by retail giants like Walmart, he said they always ask for more but were expected to work within the policy framework.

‘We have a policy. Genuine investor must work within that policy. It may not be the ideal policy from his point of view. But this is the policy that we have today. You have to take it as it is,’ Chidambaram said. ‘I am confident that one or two multi-brand retailers will enter India before the financial year is out. I think, one is just at the door step,’ he said, without naming anyone.

Chidambaram pointed out that the Indian growth trend for the last 21 years was caused by several microeconomic fundamentals. ‘Nothing has changed on these. In fact our resolve to strengthen these fundamentals has become stronger. I believe India continues to have great prospects based on these fundamentals,’ he asserted.

Chidambaram said that growth slowed down in the crisis year 2008-09 but India took the world by surprise by rebounding quickly from the slower growth of 6.7 per cent in that year to record growth of 8.6 per cent in 2009-10 and 9.3 per cent in 2010-11. However, there was a further downturn in the global economy in 2011 on account of the sovereign debt crisis in Europe and the subsequent slump in the world economy, he noted. ‘We also witnessed the emergence of domestic constraints on investment and consumption. As a consequence, India’s growth rate declined again to 6.2 per cent in 2011-12 and further to 5 per cent in 2012-13,’ the finance minister added.

‘The rising trade deficit and fall in net invisible earnings led to a widening of the current account deficit to $88 billion or 4.8 per cent of GDP in 2012-13. With a sharp slowdown in manufacturing growth and a moderation in the expansion of services, the growth in the first quarter of 2013-14 further declined to 4.4 per cent,’ he said.

Pointing out that India’s experience in this period is not unique, Chidambaram said that virtually all the major emerging economies around the world have seen a sharp decline in growth — the so-called Great Descent.
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