I would like to thank the Columbia Business School for inviting me to address the India Business Conference. The Annual Conference has become an important forum for discussion amongst professionals, scholars, entrepreneurs, and students on the changes taking place in India, its rapid economic growth and the exciting opportunities this presents for business communities worldwide. And what is most important is that these exchanges are helping to foster a better understanding of India and create lasting bonds of friendship between the Indian and American peoples.
It is a privilege to share my thoughts on the theme of this year’s Conference “India: Maintaining momentum“”- the continued growth of the Indian economy and the rapid developments in India-U.S. trade and economic engagement, and how we see all this evolving in the years ahead.
Indian economy: Maintaining steady course
The Indian economy is advancing on a path of high economic growth alongside strong ongoing measures towards its modernization and integration with the global economy. But India’s growth and development, as also the fabric of India-US economic ties, are influenced by developments in the global economy. That linkage cannot be bypassed. Last year was a challenging year for the global economy with the continuing effects of the financial crisis posing considerable challenges for global economic recovery. Emerging markets which have registered strong growth in recent years have also been impacted. In India, we too, faced a palpable slowdown in economic growth last year mainly due to external factors.
As one of the largest and rapidly growing economies, India has witnessed extraordinary change in the last two decades. It has emerged as one of the key drivers of global growth and an important player in its stability. Its
paradigm of domestic demand-driven growth and our focused effort to achieve inclusive and participatory growth have ensured that in these times of global economic uncertainty, we provide assurance of stable growth across all important areas of economy, be it agriculture, manufacturing or services. In India, the consistent high economic growth of the last several years has helped lift millions out of poverty. But, we remain acutely aware of our development challenges. Despite this, however, the fundamentals of India’s economic growth remain strong
and intact. In the current year, our focus would remain on regaining the trajectory of strong growth; containing inflationary pressures; and pursuing the process of economic reform in consonance with our developmental objectives.
India’s economic growth has moderated to 6.9% for the fiscal year that ended on March 30. This has led some commentators to argue that India is moving to a slow growth lane. The slowdown is not specific to India but is felt
across countries and regions worldwide. Even in a global economic environment that is fragile and a commodities market that is still volatile, India remains a bright spot and we expect the economy to grow at 7.6 percent in this fiscal. Recent indicators suggest that economy is turning around as core sectors and manufacturing show signs of recovery. While that moderation in growth might continue for the current year, the medium to long-term prospects remain intact and the challenge before us is to get back to the 9 % growth trajectory by
2014 and maintain that momentum in the years to come.
Our optimism for such a long-term and sustained high growth trajectory is underpinned by the current factor mix. First, the savings and investment ratio continues to remain high. Second, there is the factor of favorable
demographics with over half our population in their twenties. Third, rising middle class incomes in both the rural and urban areas continue to sustain high domestic demand buoyancy. Fourth, India is making rapid and large investments on infrastructure, both social and physical. Different states in India are
continuing their focus on building growth and investment-friendly ecosystems. They competitively seek investment to create new employment opportunities, a necessary condition for lifting millions out of poverty, and creating the
right incentives to attract private investment. Their initiatives and dynamism are going to play a significant role in elevating and sustaining this high growth trajectory in the coming decade.
Despite the recent narrative about the pace of reforms in India, let me assure you that we are working for consensus and resolution on a number of issues - introduction of a Goods and Services Tax, a new and facilitative National Manufacturing Policy, FDI in multi brand retail, deepening and strengthening financial markets for long term investments. A number of legislative bills to this effect have been introduced in Parliament and are
undergoing parliamentary scrutiny.
Realizing that to achieve a higher growth rate with low inflation,supply side constraints need to be removed, Government is focusing on easing the supply bottlenecks in major sectors of the economy like agriculture, energy,
transport more specifically in coal, power, national highways, railways and civil aviation. The challenge of containing inflation and the fiscal deficit is also an urgent one. The need for strict fiscal discipline and getting back to fiscal consolidation is fully recognized.
Infrastructure development in new townships is the focus of investment now and would remain so for the foreseeable future. A recent study by McKinsey estimates that by 2030, 65 cities will have a population of more than one million and would account for 600 million of India’s population. The share of GDP from these cities could rise to 70%. Over the next 20 years, cities would require a capital expenditure of $1.2 Trillion. This urbanization process offers huge opportunities for investment for foreign investors and capital equipment manufacturers.
Generation, transmission and distribution of uninterrupted quality power is a critical input to sustain a high growth rate. The installed power capacity is expected to increase by five times over the next two decades and electricity production is expected to expand six fold by 2030. To meet the growing need for public services, huge investment is required both in urban and rural areas, including public infrastructure, development of new educational and training facilities for skill-buildingand upgrading health care systems. Development of infrastructure, including new
roads, building ports, airports and augmenting power generation capacities, offers opportunities for an investment of close to $1.7 trillion over thenext decade. I believe that a substantial portion of investments in infrastructure in the future would come from the private sector. India’s growing market and the particular focus on modernization of the infrastructure sector therefore opens up exciting opportunities for US companies in the coming years.
We, in India, are committed to sustainable development even as the focus remains on a high growth trajectory. A long term perspective plan on energy and the ambitious National Action Plan on Climate Change seek to increase the share of clean and renewable energy in the energy mix and increase energy efficiency across the economy. Government has launched a National Solar Mission and remains committed to establishing a strong manufacturing base in this field. The US -India Clean Energy and Climate Change Initiative is to advance cooperation in clean and renewable energy, and energy efficiency. Solar and Wind energy expansion offers opportunities for green tech companies in the US for building a long term partnership with industry in India.
India's economic progress is not only a key factor of stability in the global economy but also a source of immense economic opportunity for the world. As the growth trajectory is sustained, and with a steady increase in the
disposable incomes from an expanding work force, India is expected to emerge as one of the world's largest consumer markets by 2030. Moving beyond numbers, we are observing a transformative change in India across almost all sectors of an economy that is infused with entrepreneurial energy and driven by a young working population.
One of the defining features of the current dynamism in the Indian economy is a particular emphasis on innovation. In 2010, our Prime Minister, Dr.Manmohan Singh declared the present decade to be the “Decade of Innovation’’. We would like innovation to not only create wealth but also address our development priorities. We want it to bridge gaps in vital sectors such as agriculture, education, energy, health, skills, urban and rural development; to drive growth, competitiveness and employment opportunities for our people. We want innovation to be commercially viable but we also want it to be socially relevant. The Innovation concept has indeed caught the imagination of the common man in India. Already several innovative products and services - be it a solar powered
ATM called Gramateller or the Unique Identification Number or Aadhaar project - have touched the lives of the common man in India.
Emerging opportunities for India-US business cooperation
India’s transition from Agriculture to a Services economy; our continuing focus to strengthen manufacturing; our 300 million strong middle class; and our quest for technology-based international partnerships to propel the innovation eco-system in India, have not only shaped the direction and nature of India’s economic development, but have also defined the nature of India’s trade and investment relations with other countries. Nowhere is this more visible than in our ties with the United States. Compared to even a decade ago, India’s relationship with the United States has undergone a great transformation.Our political dialogue has grown to an unprecedented level; our strategic understanding has deepened and encompasses both our region and the world; we are now Strategic Partners and our bilateral cooperation has traversed new frontiers.
Trade and economic cooperation are a central pillar of the expanding India-U.S. partnership. Today, what defines the depth of our trade and economic engagement is the fact that the strength of commercial ties is on the one hand supported by the inter-governmental mechanisms; and on the other,underpinned by the vitality of private partnerships in almost all sectors of economy. Our two-way trade in goods and services combined touched around US$ 100 billion last year. Capital flows are now a two-way phenomenon. US still remains one of the largest investors in India’s growth, but Indian companies have alsoinvested and integrated with the US economy. Between 2005-2009, Indian businesses are known to have invested about US$25.5 billion in about 43 States of the US in wide ranging fields including IT products and services; manufacturing; distribution and packaging and educational tie-ups. As I look ahead, I see the following to be of particular importance in forging bilateral trade and investment links:
§ Firstly, as I said earlier, India’s focus on developing itself as a global hub for innovation;
§ Secondly, India’s commitment to modernize its manufacturing and increase its share in the GDP to 25% by 2022.
§ India’s efforts to ensure energy security and in this context development of renewable energy. US businesses are already tapping trade and investment opportunities in this field in India; we understand that last year alone, the US EXIM took an exposure of approximately US$176 million in the National Solar Mission, and this is only likely to increase;
§ Joint efforts to develop, test and replicate transformative technologies to extend food security as part of an Evergreen Revolution;
§ The Indian infrastructure sector where our financing requirements are about $ 1 trillion in the next five years, represents a clear set of opportunities for investment and partnerships. We hope that US companies would see the obvious commercial benefits of investment links in this space.
§ Engineering Research and Development through a strong supply base in product design and development for the Indian and world market across different sectors including Aerospace; Automotive; Construction; Energy;
§ Greater collaboration in the field of health, bio-technology and pharmaceuticals through cost and skill advantages and innovative drug discovery capabilities.
§ As we move to new paradigms including cyber security and cloud computing, there would be opportunities for new business partnerships in the entire space of ICT.
§ Last but not the least, the attractiveness of the Indian market comprising it's strong consumption economy; its skilled human resource base; its strengths in knowledge economy; its rapidly growing middle class, and strong trends in urbanization.
One central aspect of our wide-ranging business ties has been their mutually beneficial nature. Take the Indian IT industry; it has helped build competitiveness for U.S. companies; worked with U.S. partners to enhance the latter’s productivity, and facilitate increased access to emerging markets. Most Indian IT companies are setting up development centers in the U.S. As per industry estimates, Indian IT companies have directly employed over 110,000 people in the U.S. last year and supported 280,000 jobs indirectly out of which about 200,000 are U.S. residents. Businesses between the two countries across a range of sectors of economic activity are more integrated than ever before. Clearly, it is a mutually complementary framework of ties.
I would like to conclude by saying that we need to keep in focus the larger picture of our relationship that is positive, progressive and mutually beneficial. Any issues in bilateral economic ties, and there would be issues on which India and the US might differ, should be addressed based on the principles of our strategic relationship. Short term transactional expediency should not obscure the achievements of the last several years, and the promise and
potential of our ties in the medium and long term. The time has also perhaps come that stakeholders on both sides might wish to consider being open to exploring new measures to advance our trade and investment ties to the next level. It is because I think, now, more than ever before, in the U.S., as in India, there is a clear recognition in advancing the India-U.S. relationship to a new level of higher engagement fully befitting of our strategic partnership.
With these words, I compliment the organizers of this conference for their efforts and wish all the participants very productive deliberations.