“I am delighted to be here today to inaugurate the CII annual meeting for 2013. I have always believed that both government and business have to be partners in writing the story of development of this ancient land of ours, and CII has been a greatly valued partner over the past many years. As different governments have steered the economy through the complex task of implementing economic reforms, CII has consistently pushed the business case for reforms and helped our country to achieve its full economic potential.
I benefited greatly from this partnership as the Finance Minister in the 1990s and I welcome it today as Prime Minister. I thank my friend Shri Adi Godrej for giving me this opportunity to share my thoughts with captains of Indian industry, at a time when I know Industry is deeply interested in the state of our economy.
I last addressed your Annual session seven years ago in 2007. That was just before the global economic crisis, when the world was booming, the collapse of Lehman Brothers was a year away, and India was experiencing growth at over 9 percent per annum. Circumstances have changed since then, not just in India but all over the world. In my last address I chose to strike a contrarian note. At a time when everything seemed to be going exceptionally well, I struck a note of caution. I said that while we have achieved much, we also have a great deal more to do to create a growth process that is truly inclusive. I also said that while the visible growth and prosperity of Indian big business, including especially its presence abroad, was in many ways a projection of India’s success, there was also need to reflect on the social responsibilities of business. I specifically mentioned the need for restraint in the matter of paying salaries and conspicuous consumption.
Some of my friends later told me that my remarks seemed unnecessarily downbeat at the time, but you will agree that these are precisely the issues that began to receive global attention in the aftermath of the global economic crisis. I propose to strike a contrarian note once again. If the business mood was unduly optimistic in 2007, I think it is unduly pessimistic today. This needs correction. Let me explain.
In 2007, I often heard it said that government had become irrelevant because India will grow at 9 percent whatever the government does. The consensus today is that unless the Government acts swiftly, our growth, which has already decelerated, will be perennially stuck at 5 percent.
Naturally, I welcome the rediscovery on the part of business of the importance of government! More seriously, I do believe that the role of government at this stage is indeed crucial. I do not believe our future is 5 per cent growth. We grew at an average of about 8 percent in the last ten years and we can get there again. And that should be our combined endeavour. But this calls for speedy and decisive government action.
Government is not the prime mover of growth. In a private sector led economy – and I repeat, we are a private sector led economy with 75% of investment being in the private sector which includes farmers, small businesses and the corporate sector – the driver of growth is indeed private investment. But the private sector needs an environment in which enterprise can flourish and create both jobs and stimulate growth. It needs an environment, which will ensure that this growth is inclusive. The environment today is not what it should be, and that is what the Government must correct.
A corrective strategy must be based on a correct analysis of the problem. Our growth has slowed down to 5 percent, which is clearly disappointing. But this is not a permanent reduction in our longer-term growth potential. As I have said, our economy grew at 8 per cent over the past ten years. If we go back to 15 years the average was also 7.5 per cent. This kind of dynamism doesn’t disappear suddenly, and we must prove the prophets of gloom as wrong. We are seeing, I believe, a temporary downturn, which does happen. After all, business cycles have been a recurrent theme of all textbooks in economics in the past. I believe, we have seen a temporary downturn, which does happen from time to time. We must recognise it as such and take corrective action.
Part of the problem is due to the global slowdown, which has affected all countries. The world, which recovered well from the 2008 financial crisis, is stumbling badly over the second crisis, provoked by the sovereign debt problems of the Eurozone. Growth is negative in the Eurozone and zero in Japan. I have just returned from the BRICS Summit. Brazil is growing at the rate of 1.5 percent, South Africa at the rate of 2.6 percent and Russia at the rate of 3.7 percent. China has done much better at 7.5 percent, but this is much lower than the rate at which China was growing earlier.
We cannot do much about the global slowdown. We can only wait for the world to get back to more normal conditions. In the meantime, we have to accept that our exports will be weak and our current account deficit in the Balance of Payments, higher than it should be. We have to learn to cope with these problems.
But we can act forcefully to deal with the many domestic constraints that have arisen, which must be removed if the economy is to perform at its full potential.
The first step in dealing with our domestic problems is to restore macro economic balance. Over the past several years, our fiscal deficit expanded to a level, which is simply unacceptable. This is partly because of a conscious policy of fiscal stimulation, which was followed by many countries.
Most countries that followed this policy are now reversing the process. We must do so also. That is precisely what the Finance Minister has tried to do. He has targeted a reduction in the fiscal deficit of about half a percent of GDP in 2013-14 and announced continuing reductions of that order each year, up to 2016-17. We are determined to do everything possible to achieve this target.
I must emphasise that this reversal is necessary not just to satisfy international financial analysts. It is necessary to ensure that the financial savings in our system are available to support investment in the economy instead of being absorbed by government deficits. It is also necessary to bring inflationary pressure under control. Inflation has been a problem and though it is softening, it needs to be brought down further.
We have also taken calibrated steps towards rationalising fuel subsidies. Petrol is now fully decontrolled and that has worked well with petrol prices moving up and down with world prices. Diesel is moving gradually towards market based pricing over the next few