Prime Minister of India - Dr. Manmohan Singh

PM's address at the CII Annual General Meeting - 2008

Another year has passed and we meet here once again. In this past year many of you have reached new heights and have made India proud. I compliment Indian business and enterprise for growing from strength to strength and facing new winds of competition in an increasingly challenging world.

This past year has been one of many achievements and many challenges. You are all aware of the broad macro economic parameters. These are robust and indicate that the economy is on a new growth path. There are some sectoral concerns, but the overall growth rate still makes India the world's second fastest growing economy. In per capita terms and even in real dollar terms the numbers are impressive and the envy of many countries around the world.

This is largely on account of a secular rise in the gross investment rate. I have no doubt in my mind that we have succeeded in taking the investment rate to a new level closer to South East Asian rates of investment. That we have done so while bringing our tariffs also closer to South East Asian levels is a testimony to the rising competitiveness of Indian industry and Indian enterprise.

We in Government have been able to make use of this new growth momentum by investing the additional revenues in social development. Consequently the budgetary and Plan allocations for infrastructure, especially for rural infrastructure, for education, for health care and for employment programmes have been increased very substantially. Through such investments in social and human development we have tried to make the growth process socially and regionally more inclusive than ever before.

I do believe that broadening the social base of development has contributed to strengthening of the growth process itself. In large parts of our country the social base of the growth process has widened bringing new social groups, including Scheduled Castes, Scheduled Tribes, Other Backward Classes and Minorities into the development process. But we have a long way to go in all these matters.

The growth of new enterprise, especially rural-based first generation enterprise, is one of the great achievements of the recent phase of economic development in our country. The challenge before us is to take this process to regions and social groups who as yet remain outside the national mainstream. That has been the endeavour of our Government and that will remain our principal objective in the medium term.

The long-term picture and the medium-term picture for India are highly encouraging. Investment, I have often said, is an act of faith based on expectations. I submit to you that any rational expectation for India must be an optimistic one. This does not mean that there will be no ups and downs along the way. Nor can we rest on our oars. There are challenges ahead, there remain unfinished tasks, and we must tighten our belts and work even harder to sustain the momentum of growth process. It is not my intention to understate the problems at hand. At the same time, it is also not correct to belittle what has been achieved and what is being done.

I am aware that there are several immediate and medium-term problems that worry our people and in particular, our industry. I can assure you that they worry us too and we are focused on addressing them. Sushil mentioned the problems of infrastructure. I can assure all of you that the rapid expansion and modernization of infrastructure of roads, ports, civil aviation, telecommunication, railways and power are among our key concerns and these are being addressed. The immediate challenge we are dealing with is that of inflation. This has consequences for growth, it has consequences for income distribution and it has consequences for the competitiveness of our industry as well.

The Government is fully alive to the challenge and has taken several steps to reverse the recent spurt in prices. I am confident that we will be able to moderate the price rise. But, we cannot ignore the fact that there are external factors contributing to inflation over which we do not have much control. We, therefore, have to take some compensatory measures at home to keep the price level on an even plane. Many developing countries today are deeply concerned about rising global commodity prices, especially the price of food and petroleum products.

The world community has not done enough to address this challenge. The diversion of land from food crops to bio-fuel, an increasing use of available foodgrains and vegetable oils for the production of bio-fuels have greatly contributed to a rise in food prices in the last two years. We need a new global compact between the developed and the developing countries, between the land surplus and labour surplus economies, between food exporters and food importers, to stabilize global food prices. The rise in global food prices not only slows down the growth momentum, it also accentuates global inequalities of income and wealth. The world awaits a new concord between the developed and developing nations on issues relating to food security.

But we cannot address the challenge of food security without also addressing the problem of rising prices of petroleum products. What is disturbing is the fact that while world oil demand rose by just 1% per annum over the past two years, crude oil prices shot up by over 90% in US dollar terms and over 40% in terms of Euros. This sharp rise in world oil prices has the effect of redistributing incomes away from oil importing developing countries to oil exporting countries. I am deeply dismayed that the global response to this Third Energy Crisis has fallen short of our expectations and compares poorly with the response to the First and Second oil crises.

At home, we are, I can assure you, fully seized of the situation. The Government has taken several steps. I am sure these will bear fruit in weeks and months to come. A normal monsoon should play its own helpful role. What is it that industry can do? Let me be upfront and say that industry and trade must eschew the temptation of seeking short-term gains, and should cooperate with Government to ensure long-term stability of the growth process. While Government has the primary responsibility for sound macro economic management, leaders of industry, particularly in sectors characterized by significant market power in the hands of a few producers, have also a societal obligation to assist the Government in moderating inflationary expectations.

The prospects for domestic growth remain good if we can ensure price stability that will help sustain the growth momentum. One important step that trade and industry can take is to absorb, to the extent possible, the rise in input costs by laying emphasis on improved productivity and thereby help maintain the price line. Industry must also pass on the benefits of tax and duty cuts to consumers.

I am aware that Indian industry has sought cost competitiveness in a variety of ways and in a range of industries, but there is more that can be and that should be done in this regard. A commitment to sustained growth of productivity and innovation must become an integral part of the philosophy of corporate managements. Let me also reiterate my message from last year's meeting that a measure of sobriety in corporate lifestyles and accepted compensation can also help cut costs and maintain the price level. This is what I mean by "tightening of belts". It will help our firms, it will help the Indian consumer.

While I am confident about the sustainability of the growth process at home, I am worried about the stability of the global financial system. The management of the financial sector in developed economies, particularly the United States, has been less than satisfactory. The sub-prime crisis and the recession in the United States have consequences for the stability and sustainability of global growth. The international community has unfortunately been slow to come to grips with the now visible structural weaknesses in the functioning of the international financial system.

The global response to this problem has not been adequate. International financial institutions have not played an active role in dealing with the problem and the consequences of the problem. This requires greater consultation at the appropriate international forum as also between the leaders of the G-8 and the so-called G5 countries.

India's voice must be heard on such matters. Be it the management of the world food economy, be it the management of the world energy economy, be it the management of the global financial system, or indeed, be it the management of global security. India has both a responsibility and a right to participate in the management of these global challenges.

We take a similar approach to the problem of climate change. Given our track record and our commitment to environmentally sustainable development we have a contribution to make. I am happy to say that the Prime Minister's Panel on Climate Change, that includes many distinguished experts, is formulating India's reasoned response to this global challenge. I expect and I urge Indian industry and trade to be in the forefront of efforts to promote the use of environment friendly and energy efficient technologies and processes.

I do sincerely believe that as the world's largest democracy we are destined to be part of any global problem solving mechanism. India has always been part of the solution to the problems of the day, never a part of the problem. But India's voice must be heard loud and clear in the councils for the management of processes of globalization.

I say this because we in India have successfully reintegrated our economy into the world economy in the past 17 years, and we wish to see globalisation benefit our people and all people over the world. India's share of world trade and world capital flows has gone up significantly. External trade accounts for more than 40% of our GDP. This is a higher level of global integration than is the case with economies like the US and Japan. The success of this new process of growth is based on responsible management of globalization and of global challenges by all the principal actors. We therefore have a stake in the stability and management of the global growth process.

I have often said that the world wants India to do well and to succeed and that our challenges are basically at home. Sustaining the growth momentum in a non-inflationary manner and increasing the competitiveness of our economy happened to be one such challenge. Merely because the external profile of our economy is robust does not mean that we can neglect domestic challenges in economic management. Money does not grow on trees. Prudent fiscal and monetary management, therefore, remains a key concern as they must be for any Government.

I am happy that this year your annual meeting is addressing the challenge of "building people", as you call it. It is a challenge that neither Government nor industry has adequately addressed in the past. There is no denying that to make better use of the opportunities and to deal more effectively with the challenges we have to not only sustain the growth process at home, but also make it more socially and regionally more inclusive.

Investment in the capabilities of our people, particularly, the young people is the most enduring way to make the growth process more inclusive. It is also the most important challenge before us. Compared to other newly industrializing economies, our rates of literacy, our educational standards, remain below par. Recognizing this fact we have made investment in education and health the cornerstone of our strategy of inclusive growth in the Eleventh Plan.

I have called the Eleventh Plan a 'National Education Plan'. We have increased several folds the funding for primary, secondary and tertiary education. But this is only the first step. Making use of this money and creating new capacities and new capabilities is an even bigger challenge. The Central Government alone cannot meet this challenge. We need the active participation of State Governments, of local governments, of civil society and the private sector to translate these higher outlays into better outcomes. The CII has been very supportive of some of our initiatives, especially the Skill Development Mission. I urge Indian industry as a whole to come forward and take a long-term view and invest more in national capacity building.

Improving the skill base of our people is the first step in building India. The second step is to improve the climate for investment so that adequate number of employment opportunities, both skilled, and unskilled, are available for all our youth. This requires greater public investment in infrastructure, it requires labour absorbing private investment in industry and it requires new opportunities for public private partnership.

It has been our sincere endeavour to pursue all these three routes to accelerated growth. But I would be the last person to say that our attempts have all borne fruit. I share your impatience even as I urge you to recognize that the glass is not half empty but half full. For Government to be more productive, more creative and more effective, we need greater political consensus and some nationally accepted norms of governance in our parliamentary system.

The CII has played a very useful role in building that consensus. Sunil Mittal referred to the need to engage the Chief Ministers. I couldn't disagree with him on that. That must be one of our top priorities. This year also, I believe, you have invited representatives of various political parties from different States. I hope your efforts will bear fruit so that despite the limitations imposed by fractured mandates, our country can move forward and we can build together a new India free from the fear of want and exploitation.