Prime Minister of India - Dr. Manmohan Singh

PM's address to the FICCI Annual General Meeting

Wish you all a very happy and prosperous new year! I am happy to be here once again at your Annual General Meeting. I compliment Shri SK Poddar and Dr Amit Mitra for their energetic leadership of FICCI during the past year. I wish Dr Habib Khorakiwala a very active and productive year ahead. I am impressed by the quiet efficiency with which Dr Mitra has re-energised FICCI over the past decade. I must thank him and FICCI for the support that has been extended for the many initiatives of our Government.

Organisations like yours, with your extensive contacts, have played a constructive role in facilitating greater political consensus in favour of economic policies that will take our country forward. There is, however, an unfinished agenda that is yet to be completed. You have, therefore, much more work to do in shaping policy in the year ahead!

Ladies and Gentlemen,

We meet at a very opportune moment in our recent history. There is an air of optimism about our economic prospects. The manufacturing sector is buoyant and both old and new industries find new markets emerging. The services sector continues to drive growth and generate employment. For the first time ever the annual inflow of foreign direct investment, measured in billion dollars, will go into double digits.

From being demand-constrained in the past, economic growth now appears to be supply-constrained. Be it power, be it port capacity, be it supply of skilled manpower - a variety of supply bottlenecks are holding the growth rate back. A major responsibility for us in government is to help relax this supply constraint. If a youthful population is our asset, we need to make them skilled and capable of securing gainful employment. This requires a huge expansion in vocational education and this is certainly on the anvil. We have started work on a Vocational Education Mission and I hope to see tangible steps being taken in this direction in the coming few months.

The Government and our macro-economic authorities also have the responsibility of ensuring that fiscal discipline is maintained even as we work to promote growth with equity. Our tax regime should be liberal, but equitable. It should be transparent and not subject to administrative discretion. I have great faith in the inherent honesty of our people, and we must respect that. When there is transgression it must be visited upon by predictable action. The introduction of VAT in most states of the country has been a matter of satisfaction. We will now move towards a common GST and better harmonization of VAT rates as well. In the long run, our tax regime should not have too many exemptions which make tax administration an unnecessarily complex exercise vulnerable to misuse.

It is also incumbent upon us to ensure transparent functioning and regulation of markets. Even the most open market economy requires regulatory supervision. In hopeful and optimistic times such as these, we must guard against irrational exuberance and ensure stability of markets.

One of the areas of successful reform in the past decade has been that of the financial sector. India's standards and regulatory institutions are world class. We have to preserve the integrity of this system and ensure that financial discipline is maintained. Our monetary authorities have the responsibility to ensure stability in the financial, foreign exchange and money markets while sustaining the growth process. As we gradually integrate India into the global financial system and as we gain confidence in our economy's abilities, we will gradually move into a less restrictive forex regime. The recommendations of the Tarapore Committee are a step in this direction, mixing caution with optimism.

Ladies and Gentlemen,

I must draw your attention to the fact that our sense of optimism must be balanced by realism about the problems at hand and the hurdles we still need to cross. Even as the optimism about our prospects makes us hold our head high, realism about the challenges we face ensures that our feet are firmly on the ground. A realistic appreciation of what needs to be done is necessary.

Amidst all the hype about accelerating growth and a buoyant market, we must not lose sight of the fact that we have to sustain a much higher rate of investment, keep inflation under control, generate more employment, impart a new element of dynamism to our agriculture and wage a decisive war against poverty, ignorance and disease.

To win this war, however, we need more productive investment. We have to create more jobs in the non-farm sector, both in rural and urban areas. The revitalization of our agriculture is an opportunity and a challenge - both for the government and the private sector. If we have to bridge the rural-urban divide and the regional economic divide, we need to transform the agriculture and allied sectors. The problems are well known. We need to look at efficient and effective solutions. As I see many business houses entering into mass retailing, I hope the supply chains being built reach out directly to farmers, ensuring more remunerative prices. The Integrated Food Law has been passed by Parliament and we will be operationalising this in the next few months. This will impart new dynamism to agro-processing. We have to invest more and invest efficiently in better infrastructure - both the physical infrastructure which Mr Poddar referred to and the social infrastructure of health and education. This we are committed to doing.

Ladies and Gentlemen,

I do believe that in the past two years our Government has succeeded in altering the state of expectations in the economy. Apart from the higher rate of investment, which is now at an all-time peak of 31% of GDP, what has sustained the above 8% annual rate of growth of the economy is the altered state of expectations. New opportunities are being created to promote public private partnerships for the expansion and modernization of infrastructure sectors. Not only do we have a goal of investing over US$ 320 billion in our infrastructure sectors, we have also created the necessary institutional structures and tangible investment opportunities to enable this investment to actually happen.

In fact, the turnaround and the revitalization of Indian railways is a classic example of what good governance with a focus on basics can achieve in a short period of time. The unparalleled growth taking place here and the public private partnerships happening in the dedicated freight corridor, the operation of container trains and the management of railway stations is an example for all other infrastructure sectors. Even the road sector has an extensive plan for rolling out top class highways in every nook and corner of the country through a BOT model. As Mr Poddar has mentioned, the Ultra Mega Power Projects have demonstrated the possibility of producing power at extremely competitive rates through private investment. However, we still need to clean up the act in this critical sector and the meeting of Chief Ministers which has been called in February will address the bottlenecks constraining this sector, particularly the viability of distribution companies. It is my solemn assurance that the power sector will secure the priority attention of our government this year.

Ladies and Gentlemen,

Like Lord Keynes, I do sincerely believe that in a world of uncertainty, risk-taking and enterprise are deeply influenced by the state of expectations. When investors worry about the present and are uncertain about the future, investment activity is undoubtedly dampened. However, when investors are reassured by the present and reasonably optimistic about the future, they invest in it. Today the state of expectations of investors is positive. They feel reassured by the various steps we have taken and by the new dynamism exhibited by Indian enterprise and professionals in recent years.

However, to sustain this positive state of expectations we need able political and economic management. We need farsighted leadership at all levels. We need, above all, greater political consensus in favour of forward-looking policies. Policies that attract new investment, create new jobs, create new capabilities and skills. Policies that empower our producers, our workers, our farmers, our artisans, our engineers and scientists and all productive sections of society.

I am aware that there is much we have to do to further accelerate the growth rate and make growth more inclusive. The Approach Paper to the Eleventh Five Year Plan sets out in detail the constraints facing the economy and the policies we must adopt to step up the rate of growth of savings, revenues, investment, income and employment. I am confident that our economy now has the steam and the energy to move to a higher growth trajectory. Our Government will take all necessary steps to sustain the buoyancy in the economy and the optimism of investors. I notice that not all proposals for investment in large projects materialize owing to various hurdles and bottlenecks. Many of these require inter-ministerial action or close coordination between the center and the states. I will ask the Finance Ministry and the Investment commission to suggest an institutional mechanism whereby large scale projects in the public and private sectors are facilitated so that they take off as planned.

Ladies and Gentlemen,

It is our responsibility in Government to create an environment conducive to improved economic performance. Equally, it is the responsibility of business to ensure that our firms become more globally competitive. Our economy has to be more closely integrated with that of our immediate and distant neighbours. FICCI has played an active role in promoting the idea of regional economic cooperation both in the context of South Asia and South-east Asia.

Later this week I will be participating in the East Asian Summit. We remain committed to increased economic interaction between India and the economies of East and South-East Asia. We would also like to be a member of the wider Asian Economic Community. This requires greater openness on our part. Indian industry must be prepared for this. We have laid out a timetable for tariff reduction and we must adhere to it. Indian industry can no longer seek excessive protection through tariffs and must prepare for the brave new world of global integration.

Indian business must also be prepared for a more fast-track economic integration in South Asia. As the region's largest economy, we must be more open to our neighbours. I must compliment FICCI for the initiative it had taken nearly a decade ago to strengthen business-to-business relations between India and Pakistan. I recall that a FICCI delegation had gone to Pakistan in 1995 to promote closer economic relations. Thanks to FICCI's efforts, the India-Pakistan Chamber of Commerce and Industries was set up. I hope Indian and Pakistani business leaders, as indeed business leaders from the region as a whole, will strengthen the hands of the political leadership in promoting peace, security and friendship in our region.

I sincerely believe, as I have said so often, that the destiny of the people of South Asia is interlinked. It is not just our past that links us, but our future too. India cannot be a prosperous, dynamic economy and a stable polity if our neighbourhood as a whole is also not economically prosperous and politically stable. Similarly, our neighbours cannot prosper if India does not do so as well. There are enormous opportunities for promoting mutually beneficial cooperation in South Asia. To exploit these opportunities, the nations of South Asia have to work sincerely to control the scourge of terrorism and extremism.

Recently, at a public meeting in Amritsar, I spoke of how I envision relations with Pakistan. I earnestly hope that the relations between our two countries become so friendly, and that we generate such an atmosphere of trust between each other, that the two nations would be able to agree on a Treaty of Peace, Security and Friendship. In the increasingly globalised and integrated world we live in, political borders are no longer economic and social barriers. I dream of a day when, while retaining our respective national identities, one can have breakfast in Amritsar, lunch in Lahore and dinner in Kabul. That is how my forefathers lived. That is how I want our grandchildren to live.

Ladies and Gentlemen,

These are good times for Indian business. But with greater opportunity comes greater responsibility. You must pay due attention to improved corporate governance. You must be sensitive to the urgent need to protect our environment and to prevent degradation of our land, water and air resources. You must ensure that the interests of your shareholders and stakeholders are best served. Even as you demand a more hospitable environment for business, you must become more socially responsible. There is no reason why the spread of industrialization should be a contentious process. Issues such as land acquisition and displacement of people and their rehabilitation and resettlement should be transparently addressed. We will be finalizing a new Rehabilitation Policy in three months and this will be more progressive, humane and conducive to the long term welfare of all stakeholders. Indian industry must be sensitive to the need to empower the weaker sections of society, particularly the scheduled castes, scheduled tribes and minorities, so that they can benefit equitably from processes of economic and social development. Industrial development is not a zero sum game. It can be a win-win process for all sections of society.

If we act wisely and with the best interests of the country at heart, we can transform our economy and society. I believe we are on the threshold of a new era of knowledge-based development. The country requires long-term and strategic thinking. As captains of Indian industry you can play a pro-active and constructive role in this regard.

In a democracy politicians will perforce take a short-term view. After all, one has to be in office to make a difference! A politician has to think of the next election, even if he speaks for the next generation! You might perhaps say that your horizon is even more limited. That you have to think about the next quarter's balance sheet results! That is fair enough.

However, it is incumbent upon all of us to think of our country's future, and the need to build a progressive and equitable polity and society. It is with this sense of patriotism and forward looking thinking that FICCI came into being. I urge you to continue to work with that spirit of your founders and stay faithful to their grand vision and aspirations. I wish your Annual Meeting all success.

Thank you.