FM Asks Export Sector to Explore New Segments in External Markets and Tap Full Potential of the Domestic Market
The Finance Minister, Shri Pranab Mukherjee has said that after giving three stimulus packages of Rs. 1,85,000 crore in his Budget in the year 2009-2010, now his focus will be on bringing the fiscal deficit to 4.1 per cent by 2012-13 in a phased manner. This was stated by the Finance Minister while addressing 102nd Annual General Meeting of Indian Merchants Chamber of Commerce in Mumbai today. The Finance Minister also said that the purpose to achieve higher growth rate is to have inclusive growth which means empowerment of people. In this regard, Finance Minister said that the trickling down theory is more relevant and now its time to empower the people directly in order to give them power, access and reach through legislation. He quoted recent legislations like right to education, right to information and right to employment. Shri Mukherjee said that he will make arrangements of funds to the tune of Rs.3,71,000 crore to implement right to education.
The Finance Minister also said that two major tax reforms are on the priority of the Government. He mentioned that direct tax code will be introduced from the next financial year i.e., 2011-12. In so far as direct tax code is concerned, all the concerns of the stakeholders have already been taken into account and now the final draft will be put on the Ministrys website soon to get the final reactions of the stakeholders. Thereafter, it will be introduced in the Parliament. As far as GST is concerned, Empowered Committee of Finance Ministers is looking into this aspect and since this requires substantial amendments, therefore, it may take some time.
Following are the excerpts from the speech of the Finance Minister:
I am very happy to address this august gathering at the Indian Merchants Chamber. The IMC would be legitimately proud of its rich and long-standing legacy and also for the valuable role it has played over time in developing and promoting the Indian industry and commerce. Hence, it is a privilege to be in the Indian Merchants Chamber. On a different note, sessions with the representatives of trade and industry, evince great interest in me, especially at the current juncture, when we are faced with divergent economic realities- a buoyant industrial sector and reviving trade in goods and services, amidst serious issues to be tackled in our farm sector.
Trade, both domestic and international, is the pivotal link connecting production and consumption. Hence, traders and merchants have as important a role in an economic system as producers and consumers do. I know that when I speak about traders and merchants, they are a highly heterogeneous cross section, operating at vastly diverse scales, regions and activities. Each level, right from the village kirana shop keeper to the all-conquering global conglomerates, is important on its own and has specific sets of comparative advantages as well as operational difficulties. Suffice it to say that the views of merchants and traders at different levels, regions and scales are important to an economic administrator, who is at the helm of a large and dynamic economy. From this point of view, the value of interactive sessions like this gets magnified.
As you must have observed, the Indian economy experienced a change in its structure, competitiveness and global identity in the last two decades, which has resulted in rich growth dividends during the post-2000 period. The economy posted an impressive average annual growth close to 9 per cent during the period 2003-04 to 2007-08. Agriculture grew at an average annual rate close to 5 per cent, industry close to 10 per cent and services at around 10 per cent during the period, indicating that the high growth achieved was broad-based. This change was facilitated by a sharp rise in investment rate in conjunction with robust consumption. The improvement in important macro-economic co-ordinates has been evidenced by the facts that; inflation remained moderate; fiscal consolidation proceeded apace; and external sector remained robust during the period. Business and trade have acted as an important facilitator in the process and also been a major beneficiary of the improved outcome.
The global financial meltdown and the economic recession in developed economies adversely affected the Indian economy. This resulted in a slowdown in the rate of growth of the Indian economy from 9.2 per cent in 2007-08 to 6.7 per cent in 2008-09. The slowdown of the Indian economy was of no surprise, with most of the world in deep recession. What was a surprise was the speed and vibrancy with which the Indian economy turned around. As you are aware, it is now widely recognized that India was not only one of the economies least affected by the global growth slowdown, but also one among the fastest to achieve a recovery from the economic slowdown. The turnaround came in the second quarter of 2009-10 with a growth of 8.6 per cent. According to the revised estimates, GDP at factor cost at constant prices in the year 2009-10 has grown by 7.4 per cent, as against 7.2 per cent in the Advance Estimates. The upward revision in the GDP growth rate is mainly on account of the extra-ordinary buoyancy shown by the industrial sector and the better-than-anticipated performance of the farm sector. Trade and other services picked up, precipitating the on-ongoing economic recovery.
With normal monsoon predicted for 2010-11, and with industrial recovery and investment activity gaining momentum, it seems highly likely that the economy is on course to accelerating economic growth in 2010-11. There are other factors that emerged in the latter half of 2009-10, which augur well for the Indian economy. The Indian exports started picking up from November 2009. Further, infrastructure services, including rail freight transport, power, telecommunications and civil aviation, have shown a visible positive change in 2009-10. The favourable capital market conditions with influx of capital flows and improved business sentiments are also encouraging. Further, factors like the expected demographic dividend, high rates of saving and investment, depth of the domestic market and the increasing presence of Indian corporates in the global market brighten the growth prospects of the economy in the medium to long run.
The immediate task before us, as I mentioned in the budget speech, is to quickly revert to the high GDP growth path of 9 per cent and then find the means to cross the 'double digit growth barrier'. Calibrating macroeconomic policies to emerging contexts is a continuous process, and some of the proposed fiscal initiatives like the goods and services tax and the changes to direct taxes as envisaged in the Direct Tax Code are some of the important measures towards promoting enterprise. While I feel that the industrial sector has regained its momentum, more broad-based recovery demands faster growth of the farm sector.
As for international trade, in April 2010-11, exports grew by 36.2 per cent compared to their level in April 2009-10. Exports witnessed a positive growth for the sixth consecutive month since November 2009. Imports have also picked up. In April 2010-11, Indian imports were 43.3 per cent higher than their level April in 2009-10. Non-oil, non-bullion imports, which largely reflect the imports of capital goods needed for industrial activity and imports needed for exports, were higher by 36.4 per cent in April 2010, compared to the corresponding period of the previous year. This, coupled with the impressive growth in the domestic production of capital goods, and the robust growth in capital formation in the recent quarters as evident from the National Accounts, is indicative of the magnitude of capacity addition taking place in the economy. Strong and sustained investment growth is a pre-condition for sustained economic growth; so is the strength in the growth in consumption, especially of the lower economic stratum.
On the consumption front, the National Accounts show that the growth in Government consumption slowed down significantly in the second half of 2009-10. However, the growth in Government consumption appears robust for the full year 2009-10, on the strength of its robust growth in the first half of the year. Briefly to recapitulate, we had been treading the path of fiscal prudence in broad compliance with the targets set under the Fiscal Responsibility and Budget Management Act, and, the Central governments fiscal deficit was brought down from 4.5 per cent of GDP in 2003-04 to 2.6 per cent of GDP in 2007-08. The unusual developments during 2008-09 necessitated deviation from this path. In view of the uncertain economic environment, the expansionary fiscal stance was continued in 2009-10 with the deficit for the year being estimated at 6.6 per cent of GDP. However, it needs to be remembered that expansionary policy is somewhat like an antibiotic. It works very well if used in limited measure to boost an ailing economy, but can begin to do harm if we persist with it for too long.
As we saw the recovery taking root in the second quarter of the previous fiscal, the Budget for 2010-11 initiated a partial roll back of stimulus measures and a resumption of the fiscal consolidation process with fiscal deficit at 5.5 per cent of GDP. The Medium Term Fiscal Policy Statement 2010-11 has provided the roadmap with fiscal deficit declining to 4.8 per cent of GDP in 2011-12 and further to 4.1 per cent of GDP in 2012-13. The Report of the Thirteenth Finance Commission lays down the roadmap for fiscal consolidation for both the Centre and States for the next 5 years. A focus on bringing down the level of public debt as envisaged in the Report and as announced in the Budget for 2010-11 would anchor the fiscal consolidation process in a sustainable debt framework. In a nutshell, the required buoyancy in consumption has to emanate from private consumption, while the Government consumption and fiscal adjustments will only work as an automatic stabilizer in the different stages of economic cycles.
As for private consumption, the slow growth in the farm sector and of the consumer non-durable sector has got reflected in the relative slowdown in the growth of private consumption in real terms during the last quarter of 2009-10. It is however, expected that this would be reversed in 2010-11, especially with the prediction of a normal monsoon. Viewed aside from this short-term assessment, there are much serious issues relating to the consumption pattern, its composition, dynamics and distribution. Todays merchants do not only transmit the goods and services produced in one corner of the globe to remote country sides, but also play an important role in changing and defining consumption patterns. Advertisements and concerted marketing strategies are effectively employed to achieve this.
We would naturally be happy to see the world economy and Indias major destination markets revive. However, such a revival will be an exogenous development. It is therefore necessary that the export sector on its part explores new segments in external markets and also taps the full potential of the domestic market. Fortunately, the size of the Indian market and the unmet demand for products and services provides reasonable scope for doing so. However, for this to happen, Indian enterprises will need to go the extra mile and make conscious efforts to reach out to different segments of the pyramid. I am sure that with its ingenuity and inherent strength, Indian enterprises will respond to this challenge. Trade, as I mentioned earlier, will have a significant role to play in this.
I understand that making India a strong economic nation is the central mission of the Indian Merchants Chamber. At this point in time, this mission statement assumes greater relevance than ever before. I would like to once again thank the IMC for inviting me to speak on this occasion and wish success in its endeavours.