INDIA’S finance minister said on Thursday (October 11) he expected the economy to post steady growth and for foreign retailers to invest within months, dismissing a gloomy prediction by the International Monetary Fund.
The IMF’s latest World Economic Outlook on Tuesday (October 8) reduced its forecast for India from 5.6 to 3.8 per cent this year, in ominous news for the Congress Party-led government, which must call elections by the end of May.
But Finance Minister P Chidambaram, visiting Washington for annual IMF-World Bank meetings, insisted India was seeing “early indications of recovery.”
Chidambaram, addressing the Carnegie Endowment for International Peace, said he expected his country “will grow at over five per cent and perhaps closer to 5.5 per cent” in the year through March 2014.
“I know that the World Economic Outlook report does not share my optimism, but I may tell you that we do not share their pessimism,” he added.
“Set against the current global economic background, even a growth rate of five percent looks good.”
India’s economy grew by 5.0 per cent in 2012-2013, the slowest annual rate in a decade as stubbornly high inflation, weak demand for exports and low business confidence took the shine off once-bigger figures.
In a drive to seek outside investment, Prime Minister Dr Manmohan Singh’s left-leaning government loosened regulations to allow foreign retailers to take up to 51 per cent stakes in joint ventures.
“I am confident one or two multi-brand retailers will enter India before the financial year is out. In fact, I think one is just at the doorstep,” Chidambaram said.
But despite India’s potential market of 1.2 billion people, no foreign retailers have applied to open shop.
US behemoth Walmart said on Wednesday (October 9) it was ending a partnership with local firm Bharti, blaming in part the government’s conditions on foreign direct investment.
“I think foreign investors are Oliver Twist, always asking for more,” Chidambaram said, without specifically mentioning any companies, and praising India’s democracy in contrast to China’s authoritarian model.
He said the cabinet had made changes in response to investors’ concerns.
“A genuine investor must work within that policy. It may not be the ideal policy from his point of view, but it is the policy that we have today,” he said.
The main opposition Bharatiya Janata Party has attacked Congress as being unfriendly toward investors. But the BJP has held out the possibility of scrapping the retail rules if it takes power, saying that foreign giants could devastate a traditional sector of the economy.
Chidambaram said he hoped the economy would see fruits from reforms in the second half of the financial year.
In other signs he cited for optimism, Chidambaram pointed to a pick-up in exports in the three months through September, a rise in freight traffic and strong rainfall. Nearly two-thirds of Indians count on agriculture for their livelihoods.
India has been hammered in recent months by stubbornly high inflation and a sharp depreciation of the rupee. The currency plunged when Federal Reserve chairman Ben Bernanke indicated in May that the United States would stop pumping the monetary system with cash, an emergency policy to revive the economy after the 2008 crisis.
Chidambaram said he expected the since deferred US taper – which prompted fears that capital would flow out of India – to take place in December or January but that the effects would be limited.
“The market has more or less factored the consequences of the taper,” he said. “The May 22 announcement took everybody by surprise and therefore the consequences were rather harsh.”
Chidambaram said that the Fed was aware it should have communicated better. The US central bank’s last policy meeting ended with a surprise decision not to start winding down the stimulus program immediately.
