India growth story intact,but downside risks there: Montek and experts

New Delhi, Nov 8 : Key Indian and foreign experts today opined that the India growth story was intact and it will play out further in future, though there are downside risks involved in sustainable economic recovery.

The sustainability of long-term growth emanates from its young demographic profile, its high saving investment rates of over 35 per cent, the fact that rural incomes are growing, there is a growing middle class, that India has come out far too well from the clutches of the global financial crisis better than most of the countries have done and that India’s growth rate at between 6.5 to seven per cent continues to make it the second fastest economy in the world.

The experts were participating at a panel discussion on the first day of the India Economic Summit here, a joint endeavour of the Confederation of Indian Industry and Geneva-based World Economic Forum.

Those who took part in the session included Dr Montek Singh Ahluwalia, Deputy Chairman, Planning Commission; Mr Raghuram Rajan, Eric J Gleacher Distinguished Service Professor of Finance, University of Chicago Graduate School of Business, US; Mr Rajat M Nag, Managing Director-General, Asian Development Bank, Manila; Ms Kalpana Morparia, CEO, JP Morgan India; Shumeet Banerji, CEO, Booz & Company, UK and Mr Lars H Thunell, Executive Vice President and CEO, International Finance Corporation, US.

The panel was moderated by Mr Michael J Elliott, Editor, Time International, Time Magazine, US.

They said the threat to the sustainability of growth resulted from the global economy suddenly collapsing instead of recovering.

Regional political instability, premature withdrawal of accommodative fiscal and monetary policy and substantial hike of interest rates because of inflation emerging on the horizon.

Adequate skill development and poor governance may pull growth down. Infrastructure development does not take off the ground in a big way, the cobweb of the legal system, especially the law of contracts are not cleared, implementation remained tardy and benefits of growth failed to percolate down.

The experts also said the slowdown of the European and the United States economies will mean not only that the fulcrum of economic policy will shift to Asia, but also significant resources will flow and growth will take place in dynamic and emerging economies.

Mr Rajan said significant demand was emerging in countries like Africa and China and by introducing right priced and appropriate technologies, India can capitalize on the new opportunities that are unfolding in these countries.

The crisis is also proof of the soundness of the Indian banking system and its low-cost operations provide an opportunity to take over and set greenfield investment in many developing and emerging markets.

A moot question was whether the fruits of development are reaching the ground. While there is much that leaves to be desired, Dr Ahluwalia said the slowdown drove home the point that while demand diminished in metros and urban areas, it remained at the same level in rural and tier-III types of cities.

Besides, programme like NAREGA have led to a substantial build-up of assets and incomes being created in rural areas.

The experts identified the shortage of skills as the main constraint in India’s industrialization, especially big companies.

Dr Ahluwalia said if some how or the other, India could come out of the skill problem, it will make the country extremely attractive to foreign direct investment.

He further opined that the quality of students coming out of institutions of higher learning need to be greatly improved, the government was doing a great lot as pertains primary and secondary education.

Ms Morparia said too much was being made of the fact that India’s financial sector had weathered the global storm well, though the fact is that its penetration continues to be low. For instance, only half of India’s adult population have accounts in banks, while credit cards are being availed by only 14 per cent of the population, Mutual Fund accounts for only four per cent of the country’s GDP and insurance about 20 per cent of GDP.

She further stated that technology needs to be used innovatively to reach a greater number of people in rural areas. Besides, reforms in the financial sector need to move beyond just increasing foreign investment in the financial sector.

In short, the scope of financial inclusion needs to be widened and deepened.

--UNI

(c) 2009 Published with permission from United News of India.
Unauthorised publication of any content from NewKerala.Com is prohibited