Finance Minister In The ADB Meeting

The Indian Finance minister’s speech in the 39th ADB meeting covers almost all the sectors of the economy with a special focus on India’s stance in the international scenario are as follows:

Our growth has been largely fuelled by domestic savings. However, we also accept that FDI would play a very important role in not only stepping up the investment rate but in also enabling transfer of technologies and the globalization of Indian firms. I know that some concerns are voiced about our FDI policy. Our FDI policy, like any other policy, is an evolving policy. I am happy to note that the foreign investors who are already doing business in India have had a satisfactory business experience in this country. According to a recent BCG study, the average return on capital employed for MNCs was 19 per cent. One half of the MNCs earned higher returns in India than their global average. I understand that all the European and American banks operating in India are more profitable here than their global average. Samsung, LG and Hyundai have each built US $ 1 billion businesses in India. Investor confidence in India is all time high today. A.T. Kearney in ‘The FDI Confidence Index 2005’ has ranked India as the 2nd most attractive investment destination. ‘World Investment Report, 2005’ has ranked India as the 2nd most attractive investment destination among Transnational Corporations.

Higher Earnings and Savings
We are getting early indications that the country has managed to break away from the 2-4 per cent per capita growth average of the past. Goldman Sachs has estimated that the number of people with incomes over US $ 3000 could increase by nearly 14 times in the next decade. By 2025, according to one estimate, there could be more than 200 million new people earning incomes above US $ 15000.

Household savings have moved on to a higher growth trajectory-in the late 1990s, savings of Indian households were pegged at 17 per cent of GDP– but by the beginning of 2006 they were in excess of 29 per cent. I am convinced that by next year, we would have caught up with the savings rate in the ASEAN region.

Integration with Global Economy
Before economic reforms kicked in, India’s exports accounted for less than 6 per cent of GDP. By the beginning of 2006, they accounted for more than 13 per cent. In a decade, India’s goods and service exports have gone up by nearly eight times from US $ 25 billion in 1991 to nearly US $ 200 billion in early 2006.

External Stability among emerging economies, India appears to be the most financially solvent. India’s short-term debt to total external debt ratio is in single digits, close to only 5 per cent, far more conservative than other emerging countries, including China, Russia, Brazil and Thailand. While outlining India’s remarkable growth performance in recent years, I must make special mention of the service and manufacturing sectors-since they’ve acted as the primary engines of this growth.

India’s Ongoing Services Boom
According to Dr. Jeffrey Sachs, India is meeting almost 70 per cent of the world BPO market requirements. In software and services, India is already a leader in the low- and medium-technology area, and I am confident will have a growing presence in high-end technology consulting within the next two years. The 25-30% annual growth in services exports will continue in the next 6 years – and that will take the “invisible” exports to about US$150 billion by the end of the decade.

Take for example, the costs of doing clinical research in India. It is 40-60 per cent lower than in developed countries. Since clinical trials comprises around 70 per cent of total costs of a new drug, using India could bring down the average cost of $800 million for a new drug by around $200-250 million.

Manufacturing
Till a couple of years ago, our manufacturing sector contributed less than 20 per cent of GDP. Now, however, the industrial sector contributes 25 per cent of GDP.

The second and much bigger wave of manufacturing off-shoring is yet to come. The first wave consisted mostly of labour intensive items. The second wave, just beginning, could reach $ 1.6 trillion annually, will consist of skill intensive manufacturing. This will work to India’s advantage.

We now have among the world’s largest manufacturers of motorcycles, automobile parts, forgings, commercial vehicles, optical storage devices and many other products. Infrastructure Needless to say, we are all well aware that shortage of infrastructure has been our problem for a number of decades. But we’ve started to put our house in order.