Dr. Bimal Jalan - Governor, Reserve Bank of India     


India 2020 Economy Outlookr
- Dun & Bradstreet Keynote Address, New Delhi, August 22, 2014

Thank you, Mr. Kaushal Sampat, for your kind words. It is a pleasure to be here and I am thankful to Dun and Bradstreet for asking me to join you in this function to release "Dun & Bradstreet India 2020 Economy Outlook". It is an excellent initiative and I am sure the release of the publication on "India-2020" will certainly contribute to evolution of economic policies to boost growth outlook over the next five years.

You will recall that India had periods of very high growth since 1990 after liberalization of its economy. At the same time, there were also prolonged periods of policy uncertainties and policy reversals resulting in low growth rates and relatively high inflation. Today in 2014, the situation in the past two months has improved somewhat with the new government with a majority in Parliament taking office. A number of positive administrative and policy measures have also been announced and longer term expectations are particularly optimistic. It is, of course, too early to say whether they will actually be realised. In this context, this conference being organized by Dun & Bradstreet is timely.

Regarding prospects in the next five years 2015-2020, we have already had two introductory keynote addresses by sponsorers and I do not want to take too much more of your time. I propose to concentrate on India's future prospects which may be of some interest for investors and financial advisory experts from longer term perspective.

Considering India's prospects, taking 2020 as the benchmark, I have no hesitation in saying that if India adopts appropriate policies which boost investors' confidence and assure consistency and there is nothing to stop India from being among the fastest countries in the world with highest rates of return to investors. A major recent positive development as I mentioned, is that we now have a government in office which has a majority of its own, and which is not dependent on a large number of coalition parties from different regions without any shared agenda. Those of you who have followed India's economy over the past few decades will recall that over as long as 25 years i.e. from 1989 to 2013-14, we had as many as nine multi-party coalitions in power with an average lifespan of only 2½ years. Of these, four governments with separate party combinations enjoyed full 5-year terms. However, the average term of remaining five governments with enormous powers to allocate public resources, was less than one year.

In this kind of situation with a large number of leaders and multiple parties dominating the political space, there was very little certainty about what the new government will do and whether it will reverse or continue with what had been announced by a previous government. This adversely affected the outlook of investors on India's long term prospects and induced them to take a relatively short-term view and giving priority to investment in short-term liquid funds rather than long-term direct investment in long- gestation capital projects such as infrastructure, power and capital goods.

As we look ahead to 2020, there is very little doubt that we will now have the same government in next five years which is accountable to the people and responsible to ensure positive economic outcomes in respect of whatever it promises to deliver. By any criteria India's economic fundamentals are now very strong. Interestingly, the incipient global recovery in growth is also likely to be positive for India even though India's dependence on foreign trade or foreign investment flows is relatively low. India has high domestic savings, which used to be more than 30% of GDP; they have recently fallen by a few percentage points because of extreme uncertainty regarding government policies due to retrospective taxation and relatively week governance structure. Even so, the savings rates are still in the region of 25% of GDP and there is no shortage of capital resources for financing fresh investment and raising funds from domestic as well as foreign markets.

India also has the advantage of abundant availability of IT and skilled managerial talent which can assure high productivity in respect of capital investment. Some of the Indian Companies rank among the best in the world with strict international accounting and transparent corporate governance standards. India also has a well functioning equity and fast growing stock market which provide opportunities for raising capital as well as for giving attractive returns to their shareholders. The corporate bond market is, however, still relatively thin because of large sovereign borrowing to finance fiscal deficit. Then, India also has sufficient labour supply at affordable wage costs. Recent labour reforms launched by the government will also help in making labour laws less stringent and more market friendly.

So all in all if you look at India's economic strengths and future prospects both in terms of entrepreneurship as well as supply of capital, skills and labour, today India can be considered as one of the most attractive destinations in the developing world for investment - short-term as well as long-term.

Let me now mention a few negatives from a larger socio-political perspective. From the broader national point of view, well periodically we have had high growth rates (for example in 2000-2010). India continues to have the largest number of persons below the poverty line in the world and a low rank in the internationally recognised measures of socio-economic progress i.e., the Human Development Index (HDI) which is computed annually by the United Nations.

As you are aware, the HDI is a composite of several basic components of human development, such as, life expectancy, literacy, standard of living and health. It is believed to be a more comprehensive measure of progress than per capita income or Gross Domestic Product (GDP). According to this index, India's rank in 2012 was 136 among 186 countries globally. In other words, India figured among the bottom one-third of the countries in the world in terms of human development, notwithstanding the fact that in terms of overall growth rate of the GDP, until lately, India was among the fastest developing countries in the world for nearly three decades since 1980s.

An important reason for India's relatively low rank in HDI and failure to alleviate poverty despite consistent high growth is due to weakness in the public delivery system, huge administrative bottlenecks at different levels, enormous ministerial powers in taking day to day decisions as well as high levels of corruption in implementing declared policies or poverty alleviation schemes. At least 6-7 ministries are likely to be involved in any programme [give example of ....rural facilities for rural students in rural areas].

The present government has announced its intention to simplify administrative system and to introduce widespread access to ministerial websites on the internet to obtain administrative approvals but we have to wait and see whether all this will actually happen and in what way. Then there is the role of states vis-a-vis the Centre. I understand that this Conference has an important session later in the evening on the role of India's states in "Re-igniting economic growth". So I do not need to talk much about it except to emphasise that for designing and implementing poverty alleviation programmes, devolution of economic powers in states is absolutely essential. At the same time, states must also take the initiative to decentralise powers to the community and local levels.

There is a lot more to talk about both the positives and negatives in regard to India's 2020 economic outlook, but let me stop here. On balance, I believe that India's opportunities are huge and there is nothing to stop India from achieving a growth rate of 7-8%, or even more, if we take measures to boost investors' confidence and simplify ministerial and government intervention for getting access to various facilities such as land, power and capital.

Thank you, once again Kaushal Ji, and organizers of this Dun & Bradstreet Conference for giving me this opportunity to talk to you.

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