The Union Finance Minister Shri Pranab Mukherjee said that the global financial crisis and one of the deepest economic downturns witnessed in recent decades, has compelled the whole world to rethink about certain principles of economic and financial policy. The Finance Minister said that nations have come together and are engaged in finding ways to ensure better regulation of markets, strengthening the monitoring and response mechanisms to global developments, reforming the international economic architecture and promoting sustainable growth. At the same time, Shri Mukherjee said that countries in the developed and the developing world have adopted revival strategies in keeping with the needs of their respective contexts, and rightly so. These strategies have elements such as strengthening risk management frameworks, improving corporate governance in banks and financial institutions, implementation of Basel III, regulating rating agencies, modifying operational framework for monetary policy and proactive use of fiscal policy, the Finance Minister added.

The Union Finance Minister Shri Pranab Mukherjee said though recent data shows some signs of improvement in theUSeconomy as well as inEuropeyet the risks however remain, as advanced economies exhibit large fiscal deficit, high public debt and unemployment levels and indifferent aggregate demand. He said that there is also the danger of sovereign debt crisis in peripheral Euro-zone countries spilling over to financial markets.  The Union Finance Minister Shri Pranab Mukherjee said that the possibility of the global commodity inflation cutting short the economic revival in these countries cannot be ruled out. Shri Mukherjee said that the major emerging market economies are experiencing robust growth, though volatility in capital inflows and inflation, including from the hardening of global commodity price, is a source of worry. The Union Finance Minister Shri Pranab Mukherjee said that notwithstanding, on the whole, 2011 should see an improvement in the world economy.

The text of the Speech of Hon’ble Finance Minister made on the occasion is given below: 

Finance Minister’s Address 

 At  

IIF Spring Membership Meeting  

New Delhi, March 4, 2011

Ladies and Gentlemen,

It is my pleasure to be here this morning to participate in the Spring Membership meeting of the International Institute of Finance (IIF). It is indeed a moment of pride forIndiato host this meeting. We have an opportunity to interact with the international community. It is also an occasion to provide a glimpse of what we are doing here on the economic policy front, especially as this meeting comes close on the heels of the Union Budget proposals for the next fiscal year.

2.      The global financial crisis and one of the deepest economic downturns witnessed in recent decades, has compelled us to rethink some principles of economic and financial policy. Nations have come together and are engaged in finding ways to ensure better regulation of markets, strengthening the monitoring and response mechanisms to global developments, reforming the international economic architecture and promoting sustainable growth. At the same time, countries in the developed and the developing world have adopted revival strategies in keeping with the needs of their respective contexts, and rightly so. These strategies have elements such as strengthening risk management frameworks, improving corporate governance in banks and financial institutions, implementation of Basel III, regulating rating agencies, modifying operational framework for monetary policy and proactive use of fiscal policy.

3.      While it is too early to pronounce a verdict on these strategies, recent data shows some signs of improvement in theUSeconomy as well as inEurope. The risks however remain, as advanced economies exhibit large fiscal deficit, high public debt and unemployment levels and indifferent aggregate demand. There is also the danger of sovereign debt crisis in peripheral Euro-zone countries spilling over to financial markets. The possibility of the global commodity inflation cutting short the economic revival in these countries cannot be ruled out. The major emerging market economies are experiencing robust growth, though volatility in capital inflows and inflation, including from the hardening of global commodity price, is a source of worry. That notwithstanding, on the whole, 2011 should see an improvement in the world economy.

4.      Against this backdrop let me share some thoughts onIndia’s economic policy and its prospects in the short to medium term. Like some other countries, the issues that have been important for us are the significance and timing of the fiscal exit, with an emphasis on the quality of adjustment for ensuring an early return to robust and sustainable growth and control of inflationary pressures, especially in our food economy.

5.      These issues have to be seen against our medium term development priorities of sustaining a high growth trajectory, making development more inclusive, and improving our institutions, public delivery and governance practices. These are inter-dependent priorities; success in any one of these priorities reinforces desirable outcomes in the others.  High growth is important for the opportunities that it generates for a young and growing labour force and for the resources it generates for the Government’s inclusive development agenda. Institutional and policy reforms are necessary for improving productivity and effectiveness of our social development strategy.

6.      The Indian economy is estimated to have grown at 8.6 per cent in 2010-11 in real terms. This growth in GDP comes on top of a stronger than earlier believed stimulus-led recovery of 8 per cent in 2009-10, which vindicates the expansionary fiscal and monetary policy stance adopted during and after the economic slowdown in the second half of 2008. The economy is thus back to its pre-crisis growth momentum. The recovery has been swift and broad-based. All three sectors, agriculture, industry and services are contributing to consolidation of growth. Our tax revenues have grown at an exceptional rate. There has also been a strong rebound in our exports in recent months.  As a result, the Current Account Deficit is likely to be around the level in 2009-10, lower than earlier anticipated.

7.      Though we have regained the pre-crisis growth momentum, there is a need to effect adjustments in the composition of growth on the demand and on the supply side. We have to ensure that the revival in private investment is sustained and matches the pre-crisis growth rates. This, we believe, requires a stronger fiscal consolidation to enlarge the resource space for private enterprise.  At the same time, there is need to improve the supply response of agriculture to the expanding domestic demand. We have taken determined measures on both these counts to help address the structural concerns on inflation management. These measures will also ensure a more stable macroeconomic environment for continued high growth in the medium-term.

8.      In the Budget proposal that I have presented to the Parliament a couple of days ago, I have brought the fiscal deficit down to 5.1 per cent of GDP in 2010-11 and pegged it at 4.6 per cent in 2011-12, which improves on our earlier targets for the same. I have also kept the net market borrowings for 2011-12 at a level which is marginally lower in absolute terms than the Budget estimates of 2010-11. This is expected to give the necessary space for growth in private investments and help in consolidating the public debt ratio at a faster pace than earlier targeted.

9.      In respect of agriculture, in the Budget proposals for 2011-12,  our thinking has been geared towards addressing certain specific bottlenecks in the area of edible oils, vegetables, protein supplements etc which along with the initiative on pulses and extending green revolution in the Eastern region should help in strengthening the supply response of the sector to growing demand. We are also directing significant amounts of credit to agriculture sector under our priority sector lending initiative. These measures should help in overcoming the structural constraints in the food economy.

10.    Sustainability of the growth momentum in the medium term depends critically on the quality and pace of infrastructure development. Our resource requirement for infrastructure over the next five year plan i.e. 2012-2017 has been estimated at US dollar 1 trillion.  Even though, the domestic saving rates are high and have recovered since the global crises, we need significant inflows of capital to finance our infrastructure needs. The Government’s approach, therefore, has been to attract and leverage private investment in infrastructure to meet the growing requirement of the economy.  Our experience with Public Private Partnership model for infrastructure development in the country has been good. It is our intention to come up with a comprehensive policy that can be used by the Centre and State Governments in improving the resource flows to the sector.

11.    Further, while allocating a major share of public resources, about 48.5 per cent of gross budgetary support to the Central Plan, for the development of infrastructure, FII investment limits in corporate bonds have been liberalized and Special Vehicles in the form of notified infrastructure debt funds with certain tax concessions have been announced to improve the flow of resources to this sector. Discussions are underway to also liberalize the FDI policy.

12.    Our Eleventh Five Year Plan, which is entering its fifth year in April 2011, endorsed a need for inclusive growth to ensure equality of opportunity for all. A multi-pronged strategy was adopted that included rapid growth for reducing poverty and creating employment opportunities, improving access to essential services in health and education especially for the poor, empowerment through education and skill development and creating low skill employment opportunities through an employment guarantee programme. In the past few years, our Government has created entitlements backed by legal guarantees for an individual’s right to information and her right to work. This has been followed-up with the enactment of the right to education in 2009-10. As the next step, we are working on the draft Food Security Bill, which is presently being fianlised. To fulfil these commitments the spending on social sector has been rapidly increased and now stands at about 37 per cent of total plan with another 25 per cent of the plan allocations being devoted to the development of rural infrastructure. With growth and the opportunities that it generates, we hope to further strengthen the process of inclusive development.

13.    We are acutely conscious that if these resources have to bear fruit we have to tackle issues of governance and service delivery. We have rolled-out an ambitious programme of providing unique identities to the people, focusing initially on the poor and the marginalized, through the Unique Identification Authority of India.  Provision of identity will enhance the access of poor and marginalized to public services and enable efficient delivery of benefits directly to the targeted population.

14.    Financial inclusion is a key determinant of sustainable and inclusive growth. It is critical to connect the unbanked sectors and enable the unbanked to become vibrant and productive participants in the process of economic growth. We have accorded high importance to financial inclusion and developed an innovative approach to cover the entire gamut of financial services pertaining to savings, credit, insurance and transfers.

15. There are several factors in the performance of the economy in the last year, which, combined with its performance over the past couple of years, augur well for the Indian economy. The savings and investment rates have reached levels that are reminiscent of the East-Asian high growth economies. As the demographic dividend begins to pay off inIndia, the savings rate is likely to rise further, provided we are able to create productive employment opportunities. Moreover, the arrival ofIndia’s corporations and its enterprise in the global market place lends to an optimistic prognosis for the economy in the medium to long run. 

17.    Today, as I stand before you, I am confident that we are in a position to sustain high economic growth in the coming years and create a more inclusive outcome for our society.  In doing so we hope to contribute to a faster recovery of the global economy.

Thank you.