New Delhi, Nov.24 : Union Finance Minister P. Chidambaram on Monday said that India must be prepared for a temporary slowdown in its economy because of the global financial meltdown, but added that the country and its people have the courage and the strength to overcome it.
"We must be prepared for a temporary slowdown in the Indian economy......... 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 nine per cent. India has faced challenges in the past and has overcome them. We have the strength to overcome the current challenges too," Chidambaram said while addressing the opening session of the Economic Editors Conference 2008 here.
Notwithstanding the global financial crisis, he said that under the present UPA regime, the Indian economy for the first time has been able to sustain a growth rate of nine per cent or more over a period of three years.
He said: "There has been a marked change in the way the Indian economy is viewed both within and outside the country. Increased global competitiveness of Indian enterprises, the resilience of the economy to global shocks, high rates of economic growth, strong macro-economic fundamentals and, above all, a positive economic outlook has contributed to this changing perception."
Highlighting the achievements of the Indian economy under the UPA regime, Chidambaram further said that 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.
He drew particular attention to the fact that 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.
He claimed that the UPA Government has been able to demonstrate "our capacity to mobilize the resources to meet the growth target of nine per cent that is set for the Eleventh Five Year Plan."
"At the beginning of 2008-09, the macro-economic fundamentals continued to inspire confidence and there was general optimism about the medium to long term prospects of the economy. This is reflected, for instance, in the continued inflows of FDI. Following a record US 32.4 billion dollars of FDI received in 2007-08, FDI flows into India have amounted to US 19.3 billion dollars up to September 2008," he said.
He also that 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 claimed that this impressive growth rate in the first four years of the UPA Government had given every one the capacity and the confidence to fund ambitious programs.
Whether it was GDP growth rate, fiscal deficit, revenue deficit, tax to GDP ratio, savings to GDP ratio and or investment to GDP ratio, Chidamabaram said that the UPA regime has demonstrated that it has done far better than the previous National Democratic Alliance (NDA) regime. Citing figures, he said that the NDA regime's growth rate during the period 1997-2003 was at best modest.
"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," he said.
"The other figures in the table tell their own story. 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. I suggest that we put an end to myth-making and spinning make-believe stories about that period," he added. He said that as a result of the year-on-year above average performance, the UPA Government has been able to vastly increase outlays under selected heads of expenditure in comparison to the outlays set by the NDA regime.
For example agriculture, the NDA had a budget allocation of Rs.3262 crores, where as the UPA had a budget allocation of Rs.9700 crores.
In education, the NDA budget allocation was Rs.7, 024 crores, where as the UPA had set a budget allocation of Rs.34, 400 crores.
In health, the NDA allocation was Rs.6983 crores, where as the UPA allocation was Rs.16534 crores. In schemes too, Chidambaram said that the UPA has exceeded what the NDA had achieved beyond expectation.
For instance, the Sarva Siksha Abhiyan budget allocation under the NDA was Rs.1, 951crores, whereas under the UPA, it was Rs.13, 100 crores. The allocation for mid-day meal scheme was Rs.1, 175 crores under the NDA, while under the UPA, it had risen to Rs.8, 000 crores The allocation for the Integrated Child Development Scheme was Rs.2, 356 crores under the NDA and Rs.6, 300 crores under the UPA As far as rural employment schemes were concerned, the UPA has allocated Rs.16000 crores plus Rs.10, 500 crores for NREGS through the first Batch of Supplementary Demand for Grants, where as the NDA had set aside a sum of Rs.4986 crores, the Finance Minister said.
This feel good scenario domestically, however, did not warrant ignoring downside risks, Chidambaram said.
"World prices of crude oil, commodities and food grains have risen sharply in the period April 2007 to January 2008. The position of crude oil is well known ... Among commodities, the prices of iron ore, copper, lead, tin, urea etc are elevated. The prices of wheat and rice have increased in the world market by 88 per cent and 15 per cent, respectively. All these trends are inflationary........."
"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," he said.
Crude oil, in a sense, he said, determined the price of many commodities, especially, energy substitutes, oil derivatives and metals.
India, he said, has weathered the crisis, but added that it paid a price in terms of inflation. He hoped the worst was over with crude oil prices on the decline since August 2008.
Regarding the food crisis, he said, India faced two difficult years in 2005-06 and 2006-07 when wheat had to be imported.
"Thanks to the hard work of our farmers and the incentives provided by way of higher MSP, we are now self-sufficient both in wheat and rice, but we cannot afford to relax our vigil and we must do more," he said.
As far as the Rabi crop for 2008-09 is concerned, he said the sown area in most crops has increased significantly and India could expect a rich harvest in 2008-09.
He acknowledged that the financial crisis that has enveloped the world since 2007 has become worse, and added that India, like other developing countries, is experiencing the ripple effects of it.
Steps were being taken to minimize the impact.
In conclusion, he said: " On the whole, the general outlook continues to be one of cautious optimism. In our view, we may expect a moderation in growth rate in the current year to a level between seven and eight per cent. India would still be the second fastest growing large economy in the world." By Ashok Dixit