Focus on Indias new trillion-dollar economy
The growing relevance of India's newly-minted "trillion-dollar economy' to the changing global economic order was emphasised at a seminar here on Monday in the context of Finance Minister P. Chidambaram's 2008-2009 budget. India's High Commissioner to Singapore S. Jaishankar said China, as "a political aside' in this emerging global story, "has now overtaken the United States as India's largest trading partner.' K. Venugopal, Joint Editor of The Hindu and The Hindu Business Line, traced some "fantastic aspects of India's growth story' but cautioned that the current trends of "a miserable show' in the power sector and project slippages in the overall infrastructure domain could still "stop ... the trillion-dollar economy from cantering' at a comfortable pace. KPMG India Executive Director Girish Vanvari said the Finance Minister had opted for "cautious' projections for the future, keeping in mind the current reality that "the Indian economy is on a roll.' Setting the tone for the seminar, organised by KPMG and the Singapore Indian Chamber of Commerce & Industry in association with The Hindu Business Line, Dr. Jaishankar said: "We are now, probably for the first year, talking about the budget of a trillion-dollar economy. We are talking about a country, where there is a 150 per cent increase in the net FDI flows, where the outward investments have actually also gone up almost seven times over what it used to be in 2003-2004, where the trade-to-GDP ratio has gone up very sharply. The [latest] budget, like any other happening in India, has a certain immediate context and a longer-term context in terms of reform.' Key factors Outlining the budget proposals in the context of what Mr. Chidambaram might have had on his mind, Mr. Venugopal spelt out an array of factors that served as the political and economic background. These were the possibility of general elections within the next 14 months; farm suicides; the drop in public investment in the agricultural sector; some indices of an economic slowdown; the appreciating rupee; the surge in foreign investment inflows; the ebb and flow of the stock market trends which, in the last six months, were "not bad' compared to the U.S. and Chinese markets; "the divergent worms' in regard to trade deficit; and the political sniping at "an economy on the downswing.' He summed up the "budget response' as follows: Rs. 60,000-crore debt waiver for small and marginal farmers; tax breaks for individuals, not companies; and excise duty reduction from 16 per cent Cenvat to 14 per cent, with no sops for exporters. Posing the question whether these proposals would work, Mr. Venugopal said: "Not everyone in the political world congratulates Mr. Chidambaram for the debt waiver. [Some] say he has not done enough. Why is India's agriculture on the rocks? One reason is that irrigation projects have failed to deliver in the last decade or so. The government's Economic Survey conceded as much. The weakening farm pulse [is such that] the only thing that has grown smartly is credit supply.' On income tax, he said the Finance Minister was "like India's spinners: flight the ball more and probably you will get the batsman out.' The growth of the economy "is delivering a lot more as tax revenues for the government.' Citing some "concerns,' including rising food prices, and turning the focus on "some very bright spots' such as the telecom and aviation sectors, Mr. Venugopal said, "The agenda is [still] pretty long' for the future. In addressing it, Mr. Chidambaram might also have to reckon with the "fragility of the coalition that he is part of.' Mr. Girish Vanvari gave an expert overview of the budget matrix of direct and indirect taxes. Vishal Sharma, KPMG Singapore Executive Director, presided.