India's economic reforms could "neutralise" the global economic slowdown by drawing more international flows, finance minister Arun Jaitley said at a BRICS investment seminar in Mumbai on Thursday.
But the rising economic protectionism symbolised by Brexit and the rhetoric in the run-up to the US elections is a potential threat though post-election realities give way to reason, he added.
BRICS is an acronym grouping five of the world's largest emerging economies - Brazil, Russia, India, China and South Africa. A BRICS summit is set to open in Goa on 15 October.
"I do believe that there are trends in the world today which on the surface do indicate that the world, at least a part of the developed world, is moving towards protectionism," the finance minister said. "These worries are real and they are real because of the fact that if developed countries see a trend of protectionism, the spillover impact of those policies on other parts of the world could be extremely adverse."
Jaitley said while increased evidence of protectionism from the US was not a good sign, it would ebb after the presidential elections were over. "I think the fears are real because it is increasingly becoming more and more protectionist," Jaitley said. "But my own experience has been that some statement made during the elections, the burden of governance subsequently brings about a change. So we have to keep our fingers crossed this time and hope that the tenor of free trade returns back once the heat of the elections itself is over."
On the domestic front, the minister said the government has taken several steps to help investment flows into the country and that India now has one of the most open foreign direct investment (FDI) policies in the world. Today, 90 per cent of the FDI coming to India is under the automatic route.
"Our ranking both in the ease of doing business and in the global competitiveness index has moved up significantly in the last few years," Jaitley said. "And this has been aided by a large number of policy initiatives, which have been taken by the government."
The minister said all policy decisions taken by his government were aimed at promoting economic activity and making India more investment friendly.
Jaitley also spoke about strengthening India's domestic market to spur aggregate demand. "We in India have learnt that notwithstanding the fact that there is a contraction as far as global flows are concerned, at least by domestic reforms we can neutralise the impact of the global slowdown," he said.