Ladies and gentlemen,

"I am grateful to each one of you for accepting my invitation to be here this morning. I have known all of you for a long time and have had the pleasure of interacting with many of you during the past six months. I have gained from my interactions with you and these have enabled me to secure a better appreciation of the imperatives of business and commerce. I am glad to say that our government has been able to settle down to work and has, in the course of just two quarters, implemented some of the promises we had made to the electorate. It is a measure of the growing confidence of the people and of investors in our policies that all economic indicators are positive and looking up. I am not, of course, referring only to the Sensex, but to all macroeconomic indicators.

While external economic indicators have improved over an already sound base created in the early to mid 1990s by the measures we took, domestic economic indicators are also beginning to look up. I am heartened to read reports on the economy prepared by professional analysts and research organizations at home and abroad that universally project an optimistic scenario for the Indian economy in the medium term. I recognise the fact, as Lord Keynes famously observed, that investment is an act faith. It is, therefore, encouraging to note that investors are once again displaying their growing faith in the immediate and medium term prospects of the Indian economy, not to mention the robust outlook for the long term. It will be the endeavour of our government to sustain and stabilize this environment of optimism.

In this environment of optimism one of the areas of concern is the rate of inflation. I do not wish to downplay the concern being expressed in this regard. It should be noted that recent inflationary pressures are almost entirely on account of an increase in world oil prices. By and large our track record in inflation management has been impeccable and I have already stated that holding the price line is a priority for our government. However, we cannot insulate ourselves from the impact of movements in world oil prices. We are of course committed to protecting the common man, to the extent possible, from these market-induced pressures. We must also see how, in the medium term, we can "de-politicise" energy pricing even as we make sure that the poor are not hurt by market forces. You can be rest assured that the economy is today in capable, competent and caring hands and our government is committed to the principles of equity and efficiency.

While the Indian economy grew at the rate of 3.5% per annum during 1950 to 1980, and at over 5.5% per annum between 1980 and 2000, I do believe we are now at the beginning of a new phase of growth and that over the next decade we should be able to register an annual rate of growth of around 7.5%. The National Common Minimum Programme of the United Progressive Alliance sets out the policy agenda required to enable and sustain this growth acceleration. As you know the NCMP has made a commitment to "ensure that the economy grows at least 7% - 8% per year in a sustained manner over a decade and more and in a manner that generates employment so that each family is assured of a safe and viable livelihood." This requires acceleration in the rate of growth of agricultural production to up to 4.0%. It requires industrial production growth rates of around 10% to 12%. It is easy to see that the two are inter-linked. I realize that for this to be feasible, it is of utmost importance that we create an enabling environment that rewards creativity, risk-taking and the spirit of enterprise and adventure.

Our government is fully aware of the challenges that we face in realizing these goals. We know that to deliver on our commitments to generate employment, reduce poverty and find resources for new investment, we must increase the rate of growth of capital formation in the economy. You would recall that responding to reform initiatives of the early 1990s—symbolizing the air of optimism and confidence of that time--the ratio of gross domestic capital formation to gross domestic product hit a peak of 26.9% in 1995-96 and private corporate sector capital formation was over 9% of GDP. However, these ratios declined to around 23% and 6% respectively in recent years. This decline has been a distressing feature of our economy in recent years. We must reverse this trend. I commit our government to re-energising the economy's growth engine, to recreating the policy and political environment required to boost investor confidence and enable an increase in private investment in the economy.

To promote new investment, to generate higher growth in incomes and employment, we must unleash the full potential of individual initiative and enterprise. We must provide a new stimulus to the 'animal spirits' of our entrepreneurs. We must create a social, political and economic environment in which budding entrepreneurs can realize their dreams. When enterprising and creative individuals create wealth, they create new employment opportunities and new hope for our collective future.

Our government believes that processes of wealth creation are essential for us to meet our commitment to eradicating poverty. The process of economic development and growth must enhance both equity and efficiency. In a developing and open economy and a democratic and open society, the drive to higher productivity must be accompanied by the creation of new employment opportunities. We need growth with equity and social justice. This is a political and a social imperative.

If you examine the variety of steps and initiatives we have taken over the past six months you will see that our policies are in fact shaped by precisely these considerations. We have taken many initiatives to increase the economy's growth prospects, its competitiveness, while at the same time addressing the concerns of equity and social justice. We have been able to restore social peace, communal harmony and political stability at home. Our political and diplomatic initiatives have begun to improve the regional security environment. I believe all this has already helped alter the state of expectations for the better. No one now talks of South Asia as a "nuclear flashpoint" and no "travel advisories" are being issued apprehending war. There has been an improvement in the security environment in Jammu and Kashmir and in the North-eastern States. Tourist arrivals into India are increasing, the number of flights into India are increasing and our airports are clogged with traffic and cargo. I sincerely hope all political parties will conduct themselves with responsibility and a sense of national purpose so that this positive state of expectations is further enhanced.

I am happy to note that the off-take of credit from the banking system is breaking new records. For the fortnight ended November 12, 2004, the increase in non-food credit over and above the position as at the end of March 2004 was nearly Rs.1,17,000 crore. This compares with the relevant figure in November 2003 of only Rs.47,000 crore. On a year-on-year basis, non-food credit in mid-November 2004 was 27% higher — the highest since 1997.

We have taken several steps to address many of the concerns expressed by domestic industry and to look ahead and see what must be done for the future. A National Commission has been set up to examine the problems facing enterprises in the unorganized, informal sector. The National Manufacturing Competitiveness Council and the Board for Reconstruction of Public Sector Enterprises have been notified and are in the process of being fully constituted. An Investment Commission is being constituted and we hope to draw on the experience of the corporate sector to speed up governmental procedures for grounding green field projects.

I am aware that there are pending issues in the larger policy agenda of reform that we must pursue to make the economy more competitive. I do believe that our immediate challenge is to step up investment and foster capital formation in agriculture and in the rural economy. This is our government's first priority. I am also aware that we must bring in massive investment into infrastructure. This will require both domestic investment and foreign investment and will have to be on the basis of public-private partnerships. I am also aware that we have to complete the reform agenda with respect to the regulatory framework in the infrastructure and financial sectors. Our government is seized of all these issues and we have appointed various high-power committees, including a committee on infrastructure chaired by me, to do the required homework and pursue policy reform.

I do not have to say to this audience that I am committed to the modernization of the Indian economy, to wealth creation and to the welfare of all our people. India stands at the crossroads. Future generations will not excuse us if we do not do what must be done here and now to give the economy a new push. I do believe that our next generation can aspire to see India emerge as the world's second largest economy, if not the first, within their lifetime. It is possible. It is do-able. But for this, we must work harder. We must reduce the transactions cost of doing business. We must invest in human development. We must create more employment. We must be a larger trading nation. We must integrate our economy at home and be more integrated globally. In the process of ensuring all this we must protect the interests of the weaker sections of society through appropriate safety nets and social welfare, and be mindful of the environment. Both government and business must enter into a social contract to ensure that these objectives are met.

I do want to draw your attention to the fact that there are several elements in the external environment that do favour India at the moment. In my travels over the past few months and my interactions with a wide range of world leaders I have found a renewed interest in India's progress. The world wants us to do well. There is today no binding external constraint on our economy, save the pressure exerted by rising energy prices and the occasional attempts to bring back protectionism through the backdoor of non-tariff barriers by many industrial economies. For us the real challenge is at home and I do hope and believe we can create a national alliance cutting across party political lines in support of a new push to development.

I believe India has to be a major trading nation. Our policy has never been mercantilist and so we do hope to be able to increase our share of world imports as we step up our share of world exports. Successive governments have committed themselves to bringing our tariffs in line with ASEAN levels and we shall take steps to this end. Our recent efforts to create an Asian Economic Community will also require us to walk forward in this direction, keeping in mind the requirements of domestic employment and enterprise.

I do not have to say to this audience that we must prepare ourselves for greater integration with the evolving world economy. Many of you have already ventured into distant markets and have set an example for others to follow. I am aware that for our firms to be globally competitive they must have world-class capabilities at home and globally competitive scale and scope of operation. This requires world-class infrastructure and R&D facilities. We will facilitate this so that India becomes the home of multinational corporations of the future. It will be our endeavour to forge ahead on the infrastructure front in the coming months. The financing of infrastructure development has attracted considerable public attention of late. I welcome your response to the various issues being debated in this context.

We must also augment the supply of our skilled work force. We have to improve the quality of institutions at all levels of the training pyramid and increase the number of institutions of excellence. This requires manpower and finance. I believe that this is another area where there can be more fruitful private-public participation. How do we bring our institutions upto-date and upto-mark? In what way can government and business work together in the area of technical and managerial education and training? How can we improve public-private interface and participation in R&D in a wide range of areas like biotechnology, drugs and pharmaceuticals, engineering, metals and chemicals.

Finally, I would like you to come forward with some specific and practical suggestions on how we can end the "tyranny of the Inspector Raj" so that we can reduce transactions costs in business. If enterprises in China have to deal with less than ten inspectors, why do we burden ours with more than fifty? I believe some homework has already been done by industry associations and we will examine their specific recommendations. A detailed agenda note has been circulated to all of you. I invite your comments and suggestions on this.

My colleagues, the Finance Minister, the Commerce and Industries Minister and the Deputy Chairman of the Planning Commission are all here with us and look forward to listening to you. They are men of great experience and will be in close contact with you to ensure continued interaction between government and industry in following through the suggestions you make and in implementing the decisions of Government."