|
New Delhi
17th November, 2004
I am happy to welcome you to this year’s Economic Editors’ Conference.
This annual Conference - an important forum for interface between the Government and the media - offers, I believe, an opportunity for direct exchange of views on significant developments in our economy. I do hope that the next two days will witness stimulating deliberations and rich exchange of ideas.
The UPA government has been in office for about six months now. During this period, on the economic front, we have faced at least three challenges. The biggest challenge has been the threat to price stability and structural reform of the petroleum sector arising out of the unprecedented rise in global crude oil prices. Through a combination of macroeconomic management and carefully calibrated measures, we have restarted the move from administered to market-determined prices, while minimizing the adverse impact of rising petroleum product prices on overall inflation and on the citizens. Second, midway through the last six months, a delayed and deficient monsoon created concerns about our growth prospects for the current year. The concerns have somewhat subsided with buoyant performance on the industrial and services fronts. In spite of the deficient monsoon, there is no cause for worry about adequate supplies of essential commodities. Concerns about some specific commodities, such as sugar, have been addressed through import supplementation. Third, we also had to cope with turbulence in the domestic stock markets, almost immediately upon assuming office. The trading infrastructure, the risk-containment mechanism and the settlement system, proved robust enough to contain the turbulence. With strong fundamentals, bullish sentiments revived rapidly, leaving behind the initial turbulence. The market outlook has continued to remain positive.
Leaving aside the escalation in global energy prices, the international economic environment at present is relatively benign. There are clear signs of recovery in global economic activity. According to the latest projections by the International Monetary Fund (IMF), the world economy is expected to grow by 5 per cent in the year 2004. Increasing corporate profitability, accompanied by rising employment, and accommodating macroeconomic policies, is expected to sustain the momentum for global output growth.
A robust turnaround by the US economy, strong recovery signals in Japan, and high growth expectations in Emerging Asia on account of good performances by China and India, are seen as the major drivers behind the buoyant outlook for the global economy. It is, therefore, an opportune moment for India to expand business with the rest of the world by taking advantage of the existing policies that aim at facilitating global integration. We should also go forward with more bold reforms.
Following a robust growth rate of 8.2 per cent achieved in the previous fiscal (2003-04), the first quarter GDP estimates for the current year, released by the Central Statistical Organisation (CSO), indicate an overall GDP growth of 7.4 per cent. However, the deficient rainfall in some parts of the country and the unprecedented hardening of international crude prices, are likely to moderate output growth in the remaining quarters of the year. In its recently released Mid-Term Review of the Annual Policy Statement for the year 2004-05, the RBI has projected the economy to grow at a rate between 6.0-6.5 per cent for the current year. This is consistent with our analysis as well. I wish to point out that even at a relatively lower growth rate of 6 per cent plus for the current year, India will continue to be one of the fastest growing economies of the world. On the back of 8.2 per cent last year (which was on a low base of 4 per cent in the previous year) any growth rate of over 6 per cent should be considered satisfactory.
During the current year, rainfall was deficient in 13 out of 36 meteorological sub-divisions in the country. This is likely to affect the overall level of kharif output, compared to the previous year. However, prospects for the rabi crop continue to remain favourable, thereby allaying apprehensions regarding a much lower level of agricultural output for the year. Foodgrain stocks, at the beginning of November, 2004, were more than 6 million tonnes higher than the buffer stock norms, indicating comfortable levels of food supplies.
While a less than abundant monsoon has forced us to moderate our expectations regarding farm sector growth, our confidence regarding the overall growth of the economy has been strengthened by the resilience displayed by industry and services. Domestic industrial activity continues to remain buoyant. The first quarter GDP estimates indicate a growth rate of 6.8 per cent for overall industrial output, which is almost one percentage point higher than the growth experienced in the corresponding quarter of the previous year. The Index of Industrial Production (IIP) reveals an aggregate industrial growth of 7.9 per cent for the first half of the year. The manufacturing sector has been particularly upbeat, and this is also reflected in the robust growth of non-POL imports during the year. Core infrastructure industries like electricity, petroleum, and coal, have shown impressive growth during the first half of the year.
The services sector, which accounts for more than half of the total national output, has maintained its satisfactory performance, by recording a growth rate of 9.5 per cent during the first quarter of the year. Services growth in the first quarter of the current year has been considerably higher than the 7.4 per cent growth recorded by the sector in the corresponding quarter of the previous year.
India’s external sector has grown from strength to strength during recent years. The country recorded a current account surplus of nearly US$2 billion during the first quarter of the current year. The current account surpluses achieved by the country in recent years reflect the growing strength of surpluses in the ‘invisible account’, which more than neutralized the deficits in the trade account. Merchandise exports are growing rapidly, but merchandise imports are growing even faster indicating the economy’s growing absorptive capacity for imports of basic, intermediate and capital goods. Thus, during the first half of the current year, in US Dollar terms, while merchandise exports grew by 24.4 per cent, while non-oil imports grew by 25.8 per cent. The Indian export performance has been particularly commendable as it coincided with a depreciation of the US Dollar vis-à-vis the Rupee as against other major currencies.
According to latest estimates, our total foreign exchange reserves are over US$122 billion. Foreign Direct Investment (FDI) inflows during the first six months of the year have amounted to nearly US$2 billion, which is more than double the level achieved during the first half of 2003-04.
The momentum gathered by domestic industry has also been reflected in a sharp rise in non-food credit growth during the current year. Domestic capital markets have rallied back, which has also been reflected in a sharp rise in the volume of foreign institutional investment (FII) inflows during recent months. Efforts to widen and deepen the regulatory framework governing the Indian capital markets have continued during the year. I shall reflect upon some of the specific measures taken in this regard during the later part of my statement.
As I mentioned right at the beginning, containing prices has been a major policy challenge. Much of the recent rise in wholesale prices can be attributed to increase in the prices of petroleum and manufactured products. Both fiscal and monetary measures, in the form of lowering customs and excise rates on specific items like petroleum products and steel, and increasing the Cash Reserve Ratio (CRR) maintained by commercial banks, have been adopted for reigning in prices.
Restoring the health of public finances is one of our topmost priorities. We have operationalized the Fiscal Responsibility and Budget Management (FRBM) Act by notifying the rules thereunder. The rules mandate us to reduce the revenue deficit and fiscal deficit by 0.5 per cent of GDP and 0.3 per cent of GDP, respectively, at the end of each financial year. The Union Budget (2004-05) aims to bring down the revenue and fiscal deficits, as a proportion of GDP, to 2.5 per cent and 4.4 per cent respectively. The encouraging growth in tax collections during the current year has made us cautiously optimistic about achieving the budgeted targets.
I shall now reflect upon some of the important policy developments during the last six months.
Some concerns were expressed about the continuation of the process of economic reforms after the change in Government. By now, I am sure, all these fears have been put to rest. Our government is firmly committed to reforms. With Dr Manmohan Singh, the original architect of reforms, as the Prime Minister, I am sure you will agree that the management of economic reforms is in safe hands.
The process of economic reforms is irreversible. We are committed to strengthening and broadening and deepening reforms for stimulating economic growth and investment, generating employment, and reducing poverty. However, we realize that economic reforms will become meaningless unless they create a sustained positive impact upon the standard and quality of life of the common people of our country. Accordingly, our objective this time has been to make the reform process ‘people oriented’.
The National Common Minimum Programme (NCMP) drafted by our government is a unique policy document. It continues with reforms while trying to fulfill the core aspirations of the common people of our country. The policies that we have adopted so far, and shall adopt in future, will attempt to realize the vision enshrined in the NCMP.
Six months is too short a period for addressing all the critical issues facing our economy. Nevertheless, in this brief period, we have tried to execute the priorities of the NCMP through the Union Budget and other policies. I shall not refer today to policy announcements but only to policy decisions and to measures actually implemented. Among them are :
Agriculture & Rural Development
A comprehensive policy on agricultural credit was announced on June 18, 2004. As on September, 30, 2004, Rs. 53,591 crore were disbursed by commercial banks, regional rural banks (RRBs), and cooperative banks, to agriculture and allied activities with a view to double the credit flow to agriculture within three years.
The National Bank for Agriculture and Rural Development (NABARD) has formulated an Action Plan for promotion and bank linkage of 5.85 lakh Self Help Groups (SHGs) over the next three years, beginning from April 1, 2004. As on September 30, 2004, as against a target of 1.85 lakh for the current year, 86,377 SHGs have been credit-linked with a bank loan of Rs. 110 crore.
A Task Force has been set up for recommending an implementable action plan to revitalize the cooperative credit system in the country. The report of the Task Force is expected very soon.
Out of an aggregate number of 181 major /medium irrigation projects receiving Central Loan Assistance (CLA) under the Accelerated Irrigation Benefit Programme (AIBP), 37 projects have been identified for completion during 2004-05 and 46 projects during the remaining period of the Tenth Five Year Plan.
The Rural Infrastructure Development Fund (RIDF) has been revived with a corpus of Rs.8,000 crore for the year 2004-05, and schemes worth Rs.908 crore have already been sanctioned.
A sum of Rs. 1485.16 crore as against a budgeted amount of Rs. 3148 crore has been expended for the Accelerated Rural Water Supply Progamme (ARWSP).
Guidelines for the National Water Resources Development scheme, aiming to repair, renovate, and restore all water bodies directly linked to agriculture, have been prepared and sent to all the States, requesting for project proposals for preparation of the pilot scheme. We intend to start the pilot works on 1st January, 2005.
A Water Harvesting scheme for SC/ST farmers has been introduced with an outlay of Rs 200 crores and a central subsidy of Rs. 100 crore. During the current year Rs. 20 crore is expected to be disbursed.
A detailed project report has been prepared for launching the National Horticulture Mission, which aims to double horticulture production from the current level of 150 million tonnes to 300 million tonnes by 2011-12. The report will soon be placed before the Cabinet for approval.
In order to make the country self reliant in oilseeds/edible oil production, a centrally sponsored "Integrated Scheme of Oilseeds, Pulses, Oil Palm and Maize" (ISOPOM) is being implemented in 14 major oilseeds growing states of the country. The Government is implementing a Minimum Support Price Scheme for oilseeds for protecting the interests of the oilseeds growers and ensuring remunerative prices.
In addition to the Farm Income Insurance Scheme (FIIS), which was introduced during rabi 2003-04 in selected districts/states for wheat and paddy (rabi) crops, a Weather Insurance Scheme, called Varsha Vima Yojna, has been introduced on a pilot basis in selected districts of Andhra Pradesh, Karnataka, Rajasthan, and Uttar Pradesh, for kharif 2004.
For accelerating the growth in rural housing, the National Housing Bank (NHB) has reduced its refinance rates by 50 basis points.
Employment generation
The coverage of the ongoing Antadoya Anna Yojana (AAY) scheme has been expanded by adding another 50 lakh Below-Poverty-Line (BPL) families.
A National Employment Guarantee Act intending to provide legal guarantee for at least 100 days’ annual employment for one able-bodied member per family among the poor is under consideration, and will be soon placed before the Cabinet for approval.
Infrastructure
An Inter-Institutional Group (IIG) of financial institutions comprising IDBI, IDFC, ICICI Bank, SBI, LIC, Bank of Baroda, and Punjab National Bank, has been formed for speedy implementation of infrastructure projects, with particular emphasis on airports, seaports and tourism.
Following announcements in the Union Budget (2004-05), two major initiatives aiming to enhance the public-private partnership in the port sector have been initiated. The Tuticorin Port Trust (TPT) has been awarded the contract for preparation of the Detailed Project Report (DPR) on the Sethusamudram Ship Canal Project. The report is expected to be finalized soon. Further, the contract for development of an International Container Transshipment Terminal (ICTT) at Vallarpadam in Kochi port on Build, Operate & Transfer (BOT) basis for a period of 30 years has been awarded to M/s Dubai Ports International.
FDI cap in civil aviation has been enhanced from 40 per cent to 49 per cent.
Education
Commercial banks have waived the collateral requirement for education loans upto Rs7.5 lakh. Upto 31st August, 2004 61,460 new student loans have been disbursed amounting to Rs 915.47 crore.
Health
The Universal Health Insurance Scheme (UHIS) has been redesigned specifically for benefiting those below the poverty line (BPL). The revised premia under the scheme are Rs.165, Rs.248, and Rs.330, respectively, for individuals, a family of five, and a family of seven, respectively. The scheme came into force from September 20, 2004.
Specific measures have been initiated for tackling the spread of AIDS and HIV in the country, in addition to the ongoing initiatives under the National Aids Control Programme. 215 sentinel sites have been established for tracking the progress of the HIV epidemic across the country. Focused activities aiming to promote safe sex practices have been undertaken. The electronic, print, and folk media is being actively used for building awareness regarding HIV/AIDS.
Senior Citizens
A new Senior Citizens Savings Scheme, offering an interest rate of 9 per cent, was introduced from August 2, 2004.
Small Scale Industry
Eighty-five items have been removed from the list of items reserved specifically for manufacture by small industries.
The Securities Contracts (Regulation) Act, 1956, has been amended for enabling small and medium enterprises to raise resources from the market through the debt and equity routes.
Capital markets
The long-term capital gains from securities transactions have been exempted from income tax. The rate of short term capital gains tax has been reduced to a flat rate of 10 per cent.
A securities transactions tax (STT) has been imposed for streamlining tax collections with respect to financial market transactions.
The Securities Contracts (Regulation) Act, 1956, has been amended for providing a legal framework for transforming domestic stock exchanges from mutual organizational forms to demutualized forms.
Specific measures have been taken by the Securities and Exchange Board of India (SEBI) for protecting the interests of small investors by making the primary securities market more scientific, transparent and investor-centric. These include : introduction of issue standards for facilitating quality issues, enhanced disclosure requirements for helping investors to make informed decisions in primary markets, transparency and enhanced corporate governance standards for creating sustainable value for stakeholders, changing the definition of small investor from the basis of number of shares held to value of applications, and revising book- building guidelines for making price discovery immune to artificial factors and sensitive to market forces.
The increase in investment ceiling for FIIs in debt funds from US$1 billion to US$1.75 billion has been notified.
The SEBI has reduced the turnaround time for processing of FII applications for registrations from 13 working days to 7 working days except in the case of banks and their subsidiaries.
In order to bring a satisfactory solution to the problem of registration fee payable by the brokers in the cash segments of the Exchanges, SEBI has, on July, 15, 2004 launched the SEBI (Interest Liability Regularisation) Scheme, 2004.
A Committee, constituted to identity the sectors in which FII investments will not be subject to the sectoral limits for FDI, has submitted its report to the Government. The report of the Committee has been put on the web-site of the Ministry of Finance for wider dissemination and discussion.
Fiscal measures
The Empowered Committee of State Finance Ministers, at its meeting held on June 18, 2004, resolved to introduce the Value Added Tax (VAT) at the State level from April 1, 2005. A Technical Expert Committee to work closely with State Governments for smooth implementation of VAT has also been set up. A consensus has been reached on the issues of compensation in the case of revenue loss to the States.
The National Institute for Public Finance and Policy (NIPFP) has prepared a report on effective targeting of subsidies. The report is currently under examination before it is placed before Parliament.
The rate of interest on Central loans to States has been reduced from 10.5 per cent to 9 per cent with effect from April 1, 2004.
Apart from these measures, which have been already implemented, or initiated, there are several more in the pipeline. I must draw your attention to the fact that there are a number of policy issues on which we are acting in close coordination with States. These relate to policies pertaining to employment generation and poverty alleviation, agriculture, rural development, human development, infrastructure and public finance. All of these are high priority areas, as indicated by the NCMP. We firmly believe that in order to fulfill the aspirations of our people, there is need for greater decentralization of policy making and implementation in several areas. Accordingly, we are deliberating with States on all relevant issues for assessing the specific requirements of people in different parts of the country and fine-tuning the policies in line with these requirements.
India and its people have mandated us to give them a more dignified, honourable, and prosperous life. We acknowledge the mandate with humility and are grateful for the faith reposed in us by the people of our country. I reaffirm our commitment to honour their hopes and aspirations.
I once again welcome all participants and wish the Conference every success.
Thank you.
|
