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Union Finance Minister Pranab Mukherjee on Tuesday said that while a growing integration of the Indian economy with the rest of the world has created new opportunities, it has also brought new challenges and made it more complex to sustain high growth.
Addressing the Economic Editors' Conference, 2009, which he inaugurated at the Shastri Bhavan, Pranab said the government is at such stage of development where the expectations from it are on the rise from almost all quarters.
"We are at a stage in our development, particularly in view of the economy's performance in the past five years, where the expectations of our people and that of our global collaborators and the foreign investors from us are high and rising. In the best of times these expectations would rest heavily on our shoulders. And these have not been the best of times. While the growing integration of the Indian economy with the rest of the world has created new opportunities, it has also brought new challenges. It has made the task of sustaining high growth more complex."
Pranab said the developments over the last two years in the Indian economy, which otherwise was experiencing an unprecedented spurt in its growth rate bear this out.
"We had to confront three major challenges originating in our external sector. "First, there was a surge in capital inflows, which peaked in the last quarter of 2007-08. Second, an inflationary explosion in global commodity prices, which began even before the first challenge had ebbed, and hit us with great force in the middle of 2008. There was barely any time to deal with this problem before the third challenge, the global financial meltdown and collapse of international trade, hit the world with severity," he stated.
Pranab said that the resulting economic slowdown and recession in major developed economies adversely impacted growth in all parts of the world. India was also impacted. "It revealed critical gaps in international policy making and regulation, in risk management and international development cooperation. It also raised a number of questions on the process of international decision making and accountability that have a direct bearing on the global economic environment for the developing countries."
Pranab Mukherjee underlined that despite these developments and given the severity of the global financial crisis, the growth in Gross Domestic Product of the Indian economy was a respectable 6.7 per cent in 2008-09, following three years of 9 per cent plus growth.
"Thus, notwithstanding the significant dip in 2008-09, over the last five years, the GDP growth has averaged 8.5 per cent per annum. We have succeeded in significantly raising the growth rate and sustaining the momentum of the economy to levels that are historically unprecedented," Pranab stated.
Stating that underpinning this performance are a number of factors that will serve as sources of strength for the years ahead, Pranab said there was a significant increase in savings and investment rates, a steady expansion in domestic demand with growth in private investment becoming the prime driver of the growth spurt.
"The fiscal deficit came down from 4.5 per cent in 2003-04 to 2.7 per cent in 2007-08 and the revenue deficit declined from 3.6 per cent to 1.1 per cent. The buoyant growth of Government revenues facilitated fiscal consolidation as mandated in the FRBM Act and renewed the public capacity to address the chronic problems of unemployment and poverty that have plagued our country. The policy regime supported the industrial sector to gain momentum and it demonstrated the capacity to compete with the best in the international arena. Investors, domestic as well as international, showed confidence in the evolving policy framework and the fundamentals of the economy," Pranab said.
"On the domestic front, this year we have had sub-normal Southwest monsoons, which have obvious implications for agriculture growth and food prices. At the same time there have been widespread floods in some parts of the country. The wanton acts of terrorism in different parts of the country have kept the issue of personal security and loss of life and property in the limelight. It has resulted in a continuous drain on our resources and a distraction for our policy and programme implementation, particularly in the affected areas,"Pranab revealed.
"The recent months have witnessed some clear signs of a turnaround in the growth rate. In the first quarter of 2009-10 the economy has recorded a growth rate of 6.1 against 5.8 per cent in the preceding two quarters of 2008-09. The industrial growth as captured by the Index of Industrial Production has improved considerably in the months of June and July 2009, with growth increasing to 8.2 per cent and 7.2 per cent respectively, followed by 10.4 per cent in August 2009," said Pranab while adding: "More importantly, the Foreign Institutional Investors who had recorded net outflows in 2008-09, have returned to the Indian market in the last five months. There is no dearth of liquidity in the economy and inflation as yet is not a pressing area of concern."
Pranab said the two worst quarters since the global financial meltdown in September 2008 were behind, and the performance of the Indian economy reflects its basic resilience.
After visible signs of pickup in industrial growth in the last few months, there are some indications that growth of core industries may have moderated in September 2009. Some uncertainties related to the revival of the global economy also remain. We cannot therefore afford to drop our guard, the Finance Minister stated.