India to go on as the second fastest economy: FM

Despite moderation in the growth rate to a level between 7 and 8 per cent in the current year, India would still be the second-fastest growing, large economy in the world, said Union Finance Minister P Chidambaram on Monday (Nov 24) while addressing the opening session of the Economic Editors Conference 2008 in New Delhi.

Since 2007, recession has enveloped the whole world and the situation of global financial crisis has become worse said the Finance Minister by adding “As the year unfolded, we found that the world was hit by three crises at the same time: first, the fuel crisis; second, the food crisis; and third, the financial crisis. Never before did the world economy face three crises at the same time. Needless to say, India was also affected.”

However, he was optimistic about India’s power to get over from this situation as he said ‘India has faced challenges in the past and has overcome them. We have the strength to overcome the current challenges too.’

Amid global recession, “India like other developing countries is experiencing the ripple effects of the financial crisis,” said Chidambaram by warning, “We must be prepared for a temporary slowdown in the Indian economy.”

However he also said, “Our effort will be to minimize the negative effect of the financial crisis and, once the global situation stabilizes, to return to the growth trajectory of 9 per cent.”

“Many developed countries are, officially, in recession. Among them are Germany, Japan, the United Kingdom and the Netherlands. Many more, including the United States and France, are expected to slip into a recession shortly,” he said but added confidently that India was nowhere to recession.

“A recession is defined as two successive quarters of contraction of the GDP. I wish to emphasize that India is nowhere near a recession. The growth estimate for the first quarter of 2008-09 is 7.9 per cent and the second quarter will, undoubtedly, show high positive growth. Therefore, we must banish the thought of recession.”

He also asked the media not to use the term ‘recession’ while describing the Indian economy.

To overcome from this financial crunch, Chidambaram stressed on to boosting the sectoral growth drivers like manufacturing, communications, trade, agriculture and construction, power, education, health and skill development in which some sectors have contributed majorly in the growth rate and need to fuel more.

“We have been able to demonstrate our capacity to mobilize the resources to meet the growth target of 9 per cent that is set for the Eleventh Five Year Plan,” said FM with highlighting the achievement Indian economy under UPA government.

The per-capita income during the four-year period (2004-08) has increased at an average rate of 7.2 per cent, leading to higher savings and higher investment. In agriculture, we have increased total production of food grains by about 10 million tonnes. The Gross Capital Formation (GCF) in agriculture as a proportion of GDP had improved from 10.2 per cent in 2003-04 to 12.5 percent in 2006-07. The exports have demonstrated an impressive growth rate of 28.9 per cent (in USD) in 2007-08. Exports, at the end of September 2008 had increased by 30.7 per cent, he added.

He also criticised the NDA government regime by mocking at the claims of higher growth rate and low inflation. “There is a popular misconception that, under the UPA Government, the incidence of tax on petrol and diesel is high, or it is higher than what it was under the NDA Government,” he said.

“In particular, 2002-03 recorded the lowest growth rate after the beginning of the reforms in 1991-92. As a consequence, the growth rate in 2003-04 appears impressive; but what is important is the average for that period. The average was only 5.7 per cent. The correction in fiscal deficit was marginal. Revenue deficit became worse. The tax-GDP ratio crawled from 9.1 per cent to 9.2 per cent. Both savings and investment as a proportion of GDP showed moderate increase,” he added.

While concluding his speech, FM said positively that in the five years of the UPA Government – including the current and critical year – would mark a phase of development that put India on a high growth path. It would also mark the starting point of a journey that, say 20 years from now, would have placed India as a middle-income nation that has been successful in eliminating abject poverty and providing a decent standard and quality of life for its people.