I am grateful to the Institutional Investor Forum for giving me this opportunity to share thoughts on developments in India, and the opportunity we offer for international businesses, including US companies.
The IIF is an important platform that showcases the extent, and the depth and strength of India’s impressive growth story. You have helped shape a positive narrative of India’s political economy and more importantly you have been important interlocutors for US businesses as they seek to develop their linkages with India.
The global context has not registered improvement since when I spoke to you last year. The world economy continues to face stiff challenges; global trade in goods and services remains sluggish in its growth. Sustained GDP growth in major economies is yet to materialize. Emerging economies have registered slower growth compared to previous years. These are factors that confront international business seeking opportunities beyond borders today.
Despite the uncertain global economic environment, it is a truth well recognized that the Indian economy has recorded impressive achievements in the last several years, fuelling domestic growth and enterprise, and generating impulses for greater mutually beneficial cooperation with our partners across the globe. We have recently ended our 11th Five Year Plan during which the average growth rate was about 7.9%. It would have been higher if it had not been for the international economic difficulties of 2008 and 2012.
India has commenced its 12th Five Year Plan in a challenging international context. And our target is to achieve an average growth of 8.2% during the plan duration of 2012-2017. We are actively focused on countering the twin challenges of inflation, and fiscal and current account deficits. While there may be no easy solutions, we are committed, indeed confident of our ability to address them in an effective manner while also factoring their impact on the political economy of the country.
Soon after taking over as the Finance Minister of India last month, Mr. P. Chidambaram said, “....The key to restart the growth engine is to attract more investment, both from domestic investors and foreign investors. Since investment is an act of faith, we must remove any apprehension or distrust in the minds of investors. We will improve communication of our policies to potential investors. The aim will be to remove the perceived difficulties in “doing business in India”, including fears about undue regulatory burden or regulatory over-reach.”
In ensuring that we continue to meet our development and growth targets, the government is moving forward on several fronts. In January 2010, our government came out with a single compendium policy on foreign direct investment. Secondly, the limits on investment were raised. In 2011, the cabinet decision of October rolled out the national manufacturing policy aimed at raising the share of manufacturing in GDP from 16 to 26%. A number of green field townships were notified. These are designed to transform the urban landscape. One of the biggest infrastructure projects in the world, the Delhi Mumbai Industrial Corridor is being implemented currently.
In terms of continuing policy reforms, just about 10 days ago, the government announced a series of bold and far reaching decisions. We have issued notifications allowing FDI in Multi-Brand retail; increasing the FDI cap in Civil Aviation sector to 49%; raised FDI in the Broadcast sector to 74%; and permitted FDI up to 49% in Power Exchanges. These wide ranging reforms will, we hope, open up immense opportunities for domestic and foreign investors. The government wants to send a very clear message: that we are committed to reforms and economic growth, that we are an investor-friendly government.
One of the key features of the Indian economy has been that its growth is driven by domestic consumption demand. It is for this reason that even during the acute global economic crisis of 2008, India continued to grow at a reasonable good pace of about 7 per cent. However, after a mild slowdown in the last two years connected to the global meltdown, it is our hope and intention that the Indian economy, as I said earlier, will now move back to its normal growth trajectory.
The strong growth performance over the last few years has brought about a number of changes both at the domestic level and at the global level as far as India is concerned. Together with the progressive changes introduced in the economic policy matrix, the fundamentals of our economy remain strong, and should not be ignored.
Today, almost all sectors of the entire economy are open to the private sector. Custom tariff rates have been reduced. The Exports regime has been liberalized. Both the direct and the indirect tax structures have been simplified and we have moved over to a value added taxation system. We have over the years liberalized the FDI framework, raising FDI caps. As a result of all these measures, the competitiveness of Indian companies across sectors has improved significantly and many of them are now going abroad to explore new horizons. The U.S. has been one of their key destinations.
The overarching scenario of rapid growth of the Indian economy in the last few years and excellent investment opportunities have attracted international businesses, including those from the United States, to the Indian market. Those already present are trying to expand their operations. As brought out in Ernst and Young's India Attractiveness Survey 2012, India remains the 4th destination globally in terms of FDI projects, and 3rd destination globally in terms of FDI value.
Global majors are committing resources for their Indian operations. There is stress on reverse innovation – developing products suited for the Indian market and which by extension will have applications in other emerging market economies. Indeed, some of them have been scaled up even for the developed economies. Already several leading international companies, including most of the well known U.S. businesses, are working to develop products, services and technologies in India for the local and global markets.
It is in this context that one sees the growth in India-US relations from a transactional to a strategic partnership. Several fundamental aspects explain the manner in which our cooperation has prospered. Ours is a natural relationship that is underwritten by shared values of democracy; pluralism; openness; respect for fundamental freedoms; tolerance and a sense of enterprise. It gives me great satisfaction to see we have established a real momentum in our economic relationship, which remains the key pivot of our partnership. Our inter-governmental mechanisms and the private sector participation in most of them are vibrant and purposeful. It has resulted in better understanding of each other’s economic policies and business opportunities.
The specific elements of our trade and commercial engagement have all been strongly positive. Two-way trade in goods and services continues to register robust growth over and above the all time high figure of about US$ 100 billion last year. Services trade is buoyant; and capital flows are now in two directions. This has translated into not only stronger bonds between the businesses; but has also given rise to new foundations of partnerships in innovation, entrepreneurship, food and energy security. It has led to U.S. businesses becoming strong partners in India’s economic growth story; and Indian businesses creating value, wealth and jobs in the United States. It is a mutually reinforcing and complementary relationship. Indeed, the canvas of India-US ties has transformed itself in a fundamental way over the last ten years. Our bilateral mechanisms are increasingly focused on finding new ground in cooperative endeavors in different sectors including trade, space, nuclear energy, intelligence sharing, military exchanges, defence trade, counter-terrorism, energy, education, heath, agriculture and science and technology.
There is a host of reasons that makes India a good investment destination. We have a huge domestic market. In India, income levels continue to rise and this is going to drive the consumption boom that is expected in the next few decades. Both our rural and urban markets are registering strong growth, and offer tremendous opportunities for innovation—of products, in delivering services and in establishing new and more productive uses of existing technologies. We have a predominantly young population and this provides us with the potential to harness a strong pool of technically qualified and trained manpower. As per some estimates, the median age in India would be 25 years even in the year 2025.We are cost competitive, and are continuously improving our business and investment environment. Our FDI policy has been liberalized over time and today almost every sector of the economy is open to foreign participation. As a result, income and consumption levels will continue to grow and this will be one of the key growth drivers for the Indian economy in the foreseeable future.
This is an opportune moment to look at India as an investment destination, as most of the world is already doing. Over the course of your deliberations, experts will talk of specific investment opportunities in individual sectors. I will therefore not dwell too much on those details. I will, however, mention one area - Infrastructure (ports, roads, airports, power, telecom, urban infrastructure) as an area of great opportunity in India.
As our Prime Minister Dr. Manmohan Singh said at the Planning Commission meeting last week, “....the most important area for immediate action is to speed up the pace of implementation of infrastructure projects. This is crucial for removing supply bottlenecks which constrain growth in other sectors. It will also boost investor sentiment to raise the overall rate of investment. “
We are therefore committed to modernizing our infrastructure. The estimated expenditure on infrastructure in the 12th Plan is expected to be about one trillion dollars. We expect a large chunk of it to come from FDI. India has achieved a considerable degree of expertise in offering projects in the PPP mode. Some of the largest opportunities in India for investments are expected to arise over the medium term as a result of the urbanization process. Our future prosperity will ride on infrastructure and the growth of sectors like manufacturing which is also vital for the absorption of our young population into the job market. Given the force multiplier effect of infrastructure development , Prime Minister Singh has stated that he would be personally reviewing the performance of the infrastructure Ministries compared with their targets.
Indeed, as an investment opportunity, international business would do well to also focus on India’s manufacturing. Although there has been a shift towards organized manufacturing, its share in the GDP and employment level has remained stable. The New Manufacturing Policy is designed in such a way as to increase the share of manufacturing in GDP to 26% in the next ten years. This will open up new opportunities in our bilateral business cooperation.
To facilitate entry of foreign investments in India, a platform, under the name of e-biz, is being created for the delivery of G2B services, to address the needs of businesses, over their entire life-cycle. Government has, further, announced the setting up of ‘Invest India’, a joint venture company between the Department of Industrial Policy & Promotion and FICCI, as a not-for-profit, single window facilitator, for prospective overseas investors and to act as a structured mechanism to attract investment.
In conclusion, let me say this:
· As India continues to address its considerable development challenges through a bouquet of policy measures, it offers immense business opportunities in each and every possible domain.
· While externalities to GDP growth develop, we will continue to rely on domestic consumption to propel our progress. In this, there are obvious partnership opportunities for the US companies, both through investments and trade.
· In our bilateral relationship, we are perhaps witnessing the most optimized setting in the India-U.S. multifaceted engagement. Trade and investment opportunities for mutually beneficial cooperation are extensive and wide ranging.
· Investment opportunities related to India’s economic development provide an excellent opening for U.S. companies to position themselves in India. They should have no doubt that India will ever veer from the path of economic liberalization. We are ready to address all issues in a transparent manner with an open mindset. We will value your input and advice as we move ahead.
· Come and invest in India; and build the India strategy into your investment decisions. The country welcomes you.
Thank you very much.