Business

FM lists challenges in sustaining growth

— PHOTO: RAJEEV BHATT

THE ROAD AHEAD: Union Finance Minister P. Chidambaram (left) with Minister of State Pawan Kumar Bansal at the Economic Editor’s Conference in New Delhi on Monday.

NEW DELHI: Finance Minister P. Chidambaram on Monday enumerated the various short and long-term challenges that would have to be overcome to sustain the tempo of robust economic growth in a ‘turbulent’ world and maintained that the country’s industrial growth — despite being poor this September — would actually be near 10 per cent for the entire fiscal year.

Interacting with the media at the annual Economic Editors’ Conference here after presenting an inaugural overview of the rosy economic scenario, Mr. Chidambaram appeared confident of industry bouncing back and said: “I don’t think we can draw conclusion from one month’s figure, but overall services and industry are likely to grow between 9 and 10 per cent this fiscal... perhaps close to 10 per cent.”

In effect, this would mean that 83 per cent of the Indian economy would grow by about 9 to10 per cent, he said, suggesting thereby that the September figures of the Index of Industrial Production (IIP) released earlier during the day which revealed a deceleration in growth to 6.4 per cent from a high of 12 per cent in the year-ago month were merely an aberration.

Attributing the slump in growth to the poor performance of the consumer durables segment in the manufacturing sector, Mr. Chidambaram pointed out that the high growth in the capital goods segment at 21.3 per cent during April-August this fiscal was suggestive of significant addition to industrial capacity.

“Industry has been the driver of our economic growth... and [the] external sector has remained robust,” the Finance Minister said, while hinting that economic growth would continue to be investment-driven, with the rate of investment growing to over 35 per cent this year from 22.9 per cent in 2001-02.

Earlier, referring to the various gains and successes on the economic front such as FDI and capital flows, foreign exchange reserves, balance of payments, inflation control and fiscal consolidation, Mr. Chidambaram said: “Now that we have identified a successful growth model, the biggest challenge faced by the economy is one of managing growth in a turbulent world.

The short-term challenges on the external front, he said, were posed by the need to “effectively manage an unprecedented influx of capital flows and burgeoning forex reserves and to contain the adverse effects of appreciation of the rupee on Indian exports. While these inflows were a test of the economy’s absorptive capacity, domestic prices might also be impacted by global hardening of foodgrains, commodity and energy prices, he said. Besides, “the economy must also be insulated to the extent possible from the potentially adverse effects of the economic slowdown occurring in some of its major trading partners,” he said.

One of the biggest challenges in the medium and long term, Mr Chidambaram said, was to effectively sustain the high pace of growth in recent years which would require development of diverse, regionally balanced, physical and social infrastructure. “The investment requirements for infrastructure are humungous and we must find ways and means to mobilise these resources and complete the infrastructure projects without cost or time overruns,” he said.

Another cause for concern, Mr. Chidambaram said, was the slow growing farm sector that still supports the livelihood of a majority of the population. Issues like stagnant yield rates in many major crops, declining per capita availability of foodgrains and need for additional public investment called for urgent policy attention. “These issues are high on the agenda of the Government and it has taken many initiatives on this count; much more needs to be done,” he said.

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