India will follow a growth model that is all inclusive, even as the country will deliver on its promise of achieving a higher growth rate, Prime Minister Narendra Modi said while addressing the Bloomberg India Economic Forum- 2016 in New Delhi today.
India, he said, is one of the world economy's brightest spots with low inflation, a low balance of payments current account deficit, and a high rate of growth, all achieved through a mix of policy and hard work, he said.
The economy also benefited from low oil prices. Between 2008 and 2009 crude oil prices fell steeply from a peak of $147 per barrel to less than $50. Yet in 2009-10, India's fiscal deficit, its current account deficit and its inflation rate, all got substantially worse. And this slide was from a higher base figure for all three. But in 2015-16, all three have improved, from a lower base, Modi pointed out.
Almost all oil importing countries benefited from oil price fall, but they have not shown similar results, he pointed out.
''We have not been lucky with global trade or growth. Both are low, and have not helped us in terms of export stimulus.
''We have not been lucky with monsoons or weather. 2015 and 2014 have both been drought years. Drought was compounded by unseasonal hail storms. Yet food grain production has remained much higher, and inflation much lower, than in the last comparable drought year, which was 2009-10,'' the prime minister pointed out.
The fact is that India's economic success is the hard-won result of prudence, sound policy and effective management, Modi said even as he cited fiscal consolidation as one big success of the government. ''We have met ambitious fiscal targets in each of the previous two fiscal years. We have reduced the deficit even while increasing capital expenditure. And the reduction has come despite an unprecedented steep cut in the centre's share of tax revenues, in the award of the Fourteenth Finance Commission. For 2016-17, we have targeted a fiscal deficit of 3.5 per cent of GDP. This will be the second lowest level in the last 40 years,'' Modi pointed out.
There has been a smart pick-up in credit growth after September 2015. Credit off-take between February 2015 and February 2016 increased by 11.5 per cent. The overall fund flow to the corporate sector through equity and borrowings of various kinds, domestic and foreign, has increased in the first three quarters of 2015-16 by over 30 per cent, he pointed out.
Also, Modi said, between 2013 and 2014, the number of firms whose credit rating was downgraded was much higher than those who were upgraded. That has now changed decisively. ''Upgrades are up and downgrades are down.''
In the first half of fiscal year 2015-16, for every company getting a downgrade, there were more than two companies which received upgrades, the best level in recent years.
Among firms with low levels of leverage, the situation is even better. Upgrades exceed downgrades by a huge margin. The number of upgrades is 6.8 times the number of downgrades for large firms with low leverage; for medium-sized firms the ratio is 3.9; and for small firms it is 6.3. These are exceptionally robust numbers.
The only segment showing an increase in downgrades is highly leveraged large firms. The government and the Reserve Bank have taken tough action to recover dues from large corporate defaulters. Perhaps the noise from this segment has influenced media perceptions.
On investment, he said, net foreign direct investment in the third quarter of the current financial year was an all-time record. ''But to me, more interesting is the dramatic increase in certain important sectors. In the period from October 2014 to September 2015, FDI in fertilizer was $224 million compared to just $1 million in the period October 2013 to September 2014; in sugar, it was $125 million compared to just $4 million; in agricultural machinery, it doubled to $57 million from $28 million.
These are sectors that are closely connected with the rural economy. I am thrilled to see that foreign investment is flowing into them.
In the year to September 2015, FDI in construction activities showed 316 per cent growth. Computer software and hardware had 285 per cent growth. FDI in the automobile industry grew 71 per cent. This is concrete evidence that the Make in India policy is having effect in employment intensive sectors.
In a difficult global environment for exports, manufacturing output has fluctuated. However, several key sub-sectors of manufacturing are growing rapidly. Motor vehicle production, which is a strong indicator of consumer purchasing power and economic activity, has grown at 7.6 per cent. The employment-intensive wearing apparel sector has grown at 8.7 per cent. Manufacturing of furniture has grown by 57 per cent, suggesting a pick-up in sales of flats and houses.
Looking towards the future, he said while the emphasis in the past has been on agricultural output, rather than on farmers' incomes, ''I have set the objective of doubling farmers' income by 2022. I have laid this out as a challenge, but it is not merely a challenge. With a good strategy, well-designed programmes, adequate resources and good governance in implementation, this target is achievable. And, as a large share of our population depends on agriculture, a doubling of farmers' incomes will have strong benefits for other sectors of the economy.''
He said the government is in the process of streamlining the National Food Security Act scheme, the Mahatma Gandhi National Rural Employment Guarantee Scheme and other social security schemes.
Coal, minerals and spectrum have been auctioned transparently raising large amounts. Managerial improvements have resulted in elimination of the power shortage, a record high in highway construction per day and record port through-put. We have launched a number of new programmes across various sectors. Many legacy issues have been solved. The number of stalled projects has declined. Even the long-closed Dabhol power plant is operational again thanks to our coordinated efforts, and is generating power, saving jobs and avoiding bad debts for the banks.
There has been a durable reduction in inflation since this government took office, which has been achieved partly to bold measures taken to strengthen monetary policy and the Monetary Framework Agreement with the Reserve Bank of India last year.
''Under the new Hydrocarbon Exploration Licensing Policy, there will be pricing and marketing freedom and a transparent revenue-sharing methodology. This will eliminate many layers of bureaucratic controls. For on-going projects which have not been developed, we have also given marketing and pricing freedom, subject to a transparent ceiling based on published import parity prices. For renewal of existing Production Sharing Contracts, we have introduced a transparent method involving a flat percentage increase in government profit share. This removes discretion and uncertainty.
The Real Estate Regulation Act recently passed by the Parliament will go a long way in transforming the real estate market, protecting buyers and promoting honest and healthy practices. Along with the passing of this long pending bill, we have introduced tax incentives for developers and buyers of housing for the neo-middle class and the poor.
The UDAY scheme in the power sector has permanently changed the incentive structure for state governments. Ambitious operational targets are backed by credible incentives to perform.
''From an average of less than 1500 Megawatts of solar capacity addition per annum, we are moving up to 10,000 Megawatts per annum. When I announced a target of 175 Gigawatts of renewables, as a pillar of our climate change strategy, many were surprised and some were skeptical. Yet, this month the International Energy Agency has reported that a surge in renewables has already halted global growth in energy-related carbon emissions.
Parliament has recently passed a new law on inland waterways which will enable the rapid development of this efficient mode of transport. This will increase the number of navigable waterways from 5 to 106.
Foreign direct investment policy has been transformed by allowing investment in hitherto closed sectors like railways and defence, and enhancing investment limits in insurance and many other sectors.
We have enhanced the limits for foreign investment in stock exchanges and allowed them to be listed. I am sure, you are aware, of the reforms we have undertaken to promote private equity venture capital, and an eco-system for start-ups. I note that this 'new economy' is the focus of your panel discussions.