A Plenary on the theme – ‘Globalisation, Indian Economy and the Diaspora’ was held today as part of the ongoing second Pravasi Bharatiya Divas. The plenary was chaired by Lord Meghnad Desai, Professor of Economics and Director, Centre for the Study of Global Governance, LSE, UK. The keynote address was delivered by Shri Ashok Lahiri, Chief Economic Adviser, Ministry of Finance, Government of India.
Following is the text of the Chief Economic Adviser’s Address on the occasion:-
“Mr.Chairman and friends from overseas,
Let me first extend a warm welcome. You could not have been here at a better time than this. After a drought affected 2002-03, there is a sharp turnaround in growth in the current year. Growth in the current year is likely to be over 7 per cent, or as the Governor RBI said, ‘likely to be… around 7.0 per cent with a continued upward bias’. Allow me to add that Central Bank Governors, all over the world, are well known for their conservatism, and when the Governor RBI says that growth is likely to be around 7.0 per cent, you better take it seriously! It is not that only agriculture is bouncing back after a monsoon failure last year, but manufacturing is showing definite signs of revival, while services continue to perform satisfactorily.
Foreign exchange reserves crossed US$100 billion on December 19, 2003. That is a long, long way from those bleak days of 1990-91, when our reserves had fallen below $1billion, and we had to mortgage our gold to borrow abroad and also access the overnight market just to stay current on our debt service obligations!
Valuation of stocks has undergone a healthy upward revision. The BSE Sensex reached an all-time high of 6119.5 yesterday. There are reports that IPOs are in the offing. In summary, with low inflation, moderate interest rates, and booming capital markets, the prospects for growth are bright. There is widespread recognition, both at home and abroad, that India is one of the fastest growing economies of the world. There is money to be made by building, creating and investing in India.
What has globalisation got to do with the improved performance of the Indian economy? I believe, quite a bit. Internal and external liberalization has been the keystone of the reforms. Internal liberalization has been about dismantling the permit-licence raj, and unleashing the full creativity of Indian entrepreneurship. On the external front, it was about aligning our prices with international prices and leveraging our comparative advantage.
India has always been a strong trading nation, both in goods as well as in services. Historians tell us that the large stock of gold and silver with households – mostly Indian women – is the accumulated surpluses from the current account over centuries, perhaps a millennium. Migrant Indians have gone and contributed to the prosperity of many a nation all over the world. They have built roads, railroads, managed port handlings, served as doctors and manned the hospitality sector with great distinction. We have had a very old export tradition, not only in goods, but also in services.
The share of India’s exports in world trade, which stood at 2.2 per cent in 1948, had declined continuously to 1.3 per cent in 1953, 1.0 per cent in 1963, 0.5 per cent in 1973 and 1983, improving marginally to 0.6 per cent in 1993, and stood at 0.7 per cent in 2001. This is compared to a share of 4.3 per cent for China, 2.4 per cent for Korea, 1.4 per cent for Malaysia, 1.1 per cent for Thailand and 0.9 for Indonesia. The good news is, our share of world trade is looking up.
I believe the external reforms have adequately rekindled this great Indian tradition in trade and services. In the post-independence period, never has our current account been consistently as strong as they have been in the post-reform period. Exports grew by almost 190 per cent from $18.5 billion in 1990-91 to $53.4 billion in 2002-03. Imports have grown as well, but at a lower rate than exports, and without creating a balance of payments problem. Imports grew by about 140 per cent from $27.9 billion in 1990-91 to $67.9 billion in 2002-03. Exports of miscellaneous invisibles, such as software, have registered buoyant annual average growth rate of 35 per cent by growing from US$ 4.1 billion in 1997-98 to US$18.7 billion in 2002-03.
The current account of the balance of payments turned into a surplus after a long gap of 23 years in 2001-02, and remained so for six successive quarters. The current account of the balance of payments turned into a deficit in the first quarter of 2003-04, but was adequately made up by buoyant capital inflows. Furthermore, it is not absolutely clear that the deficit in the current account in the first quarter will necessarily persist over the medium term.
Reducing import tariffs since 1991 and removal of quantitative restrictions on imports, have served the country well in terms of higher growth and greater export vibrancy. The Finance Minister announced a further reduction in import tariffs day before yesterday to reduce the cost of imported raw materials and intermediates, enhance the competitiveness of Indian industry and give the consumer a bigger choice.
The external sector has been contributing to growth since 2000-01 through a current account surplus. Should we be worried about a current account deficit, like in April-June 2003? The answer, to my mind, is in the negative. The connection between growth and the external sector is a much more complex matter than the pure and simple arithmetic of growth accounting. It can be argued that the recent upswing in imports – mostly raw materials, intermediates and capital goods – reflects the revival of buoyant growth in the economy.
India is getting globalised. In terms of external indebtedness classification, from a ‘moderately indebted’ category in 1998, India graduated to being a ‘less indebted’ country in 1999. So, if you are investing your money in India, it is safe. Rating agencies have been revising our foreign currency debt outlook upwards. India has left the era of psychology of want in the realm of foreign exchange, and is now ready to reclaim its rightful place in world trade by building on its comparative advantage.
Vibrant export performance requires a world-class infrastructure. Without the roads, ports, airports, adequate and reliable power supply, telecommunication, and water supply, we cannot attain, not only our export ambitions, but also our other desired development objectives. In the last five years, the Government has emphasized infrastructure and initiated measures with long-lasting effects. Impressive progress has been made, for example, in roads, telecom and power.
The National Highways Development Project, one of the most ambitious highway projects in the world, is providing four/six lane highways connecting the length and breadth of the country. Government adopted the National Telecom Policy 1999, and a positive policy thrust and rebalanced tariffs have increased tele-density more than four-fold from 1.56 in 1997 to 7 per 100 in 2003. The passage of Electricity Act, 2003, creating a legal framework for a competitive market for electricity, including delicensing of thermal generation, and non-discriminatory open access for transmission, is an important milestone in regulatory reforms in the electricity sector. There has been substantial progress on State-level reforms, significant improvements in the distribution segment through the Accelerated Power Development and Reforms Programme (APDRP), clearing of past dues of State Electricity Boards (SEBs) to Central Public Sector Units under the one-time settlement scheme, and commissioning of some hydel projects. Energy generated in gross terms has increased from 465.8 billion KWH in 1997-98 to 597.5 billion KWH in 2002-03.
Given the comfortable foreign exchange reserves, and the incipient upward pressure on the rupee, India is going forward towards the already announced alignment of our tariff structure with the ASEAN countries. Given the disappointment from the latest round of multilateral trade negotiations, we are also moving towards promising regional trade agreements with ASEAN as well as SAPTA countries. What is important though is the enthusiasm of the rest of the world in embracing a just and open world trade regime.
The question is, what about the rest of the world? Two things are important: growth in world trade and an open and fair multilateral trade regime. World merchandise trade by volume shrank by 1.5 per cent in 2001, after a growth of 11.0 percent in 2000 and an average growth of 6.5 per cent in the 1990s. The fall appears to be due to the economic slowdown in the major industrial country markets and East Asian economies, with a major reason being the slump in the technology sector.
The international trading environment in 2001 was characterized by continued significant protection to trade in industrial products (tariff peaks and escalations) affecting the market access of developing countries like India. For example, last year, a study of tariff barriers that apply to top 20 product categories exported by India to the USA by value showed that tariff rates on a number of textile products, which represented almost 20 per cent of the total value of US imports from India, were in excess of 10 per cent as against a simple average tariff on India’s merchandise imports of less than 5 per cent. The slow pace of elimination of restrictions on textiles and clothing, the rising trend in the use of trade defense instruments and the continued use of subsidies, particularly in agriculture, also characterized the trading regime in 2001. According to the WTO, exports from India were subject to 40 anti-dumping and 13 countervailing measures, mainly for agricultural products, textiles and clothing products and chemical and related products. Product regulation and standards have also become a growing issue for market access in goods.
Nevertheless, we are going forward. India is like an elephant. It may not pounce like a tiger, but it also does not turn back easily.
So much about the Indian economy and globalisation. Where does the diaspora fit into all this?
First, you know your ancestral land and you know it better than the other foreigners outside India. You can feel the pulse of this land, the vibrancy better than them. This is a good time to discover this land – the Incredible India that you have heard about- from your parents and grandparents sitting in London, New York or Johannesburg. We lay great stress on tourism industry. So be on the vanguard. Discover India, go and tell your friends about it and tell us what we need to do to make your stay more comfortable in India.
Second, though we are not on the top of the league as a recipient of foreign investment, the return on foreign investment in India has been one of the highest in the world. If you wish, come and join the party. Make money.
Third, we believe knowledge is industry. There is an important distinction between the Indian and many other diaspora, for example, the Chinese. The Chinese diaspora has a lot of businessmen and industrialists outside the mainland. The Indian diaspora, on the other hand, has a lot of professionals. You have the knowledge, and the technical knowhow. If you have an idea, and want to leverage it to make money, come to India. We have a large pool of professionals who are available at very competitive rates. Come and execute your ideas back in your ancestral home.
Ladies and Gentlemen, allow me to conclude by saying that I firmly believe that in India, there’s a party on – a party of accelerated development. We have embraced globalisation and are rapidly integrating into the world economy. To our friends from abroad, the message is, come and join the party, discover India, invest and make money, and choose India for implementing your creative ideas”.
(Release ID :645)