core sector communique

INDIA CAN SEE INCREASED GROWTH RATES IF REFORMS STAY ON TRACK

• India can see a return to increased growth rates
• Current reforms – particularly in education, healthcare and the financial sector – need to stay on track and expand
• There are huge market opportunities in countries like India, particularly at the bottom of the pyramid
• For more information about the India Economic Summit, please visit http://www.weforum.org/india2009

New Delhi, India, 8 November 2009 – India can see a return to increased growth rates if current reforms – particularly in education, healthcare and the financial sector – stay on track and expand. This was the prediction of economic experts at the annual India Economic Summit. Following five years of nearly 9% growth, the economy grew at a rate of 6.7% in 2008-2009 and growth is predicted at 6.5% for 2009-2010. Most predicted 9% growth beyond 2010.

“There are inherent strengths on the supply side that make it possible for India to grow, which implies we can handle the constraints,” said Montek S. Ahluwalia, Deputy Chairman, Planning Commission, India. ”The most important constraint is infrastructure. But India has all that is needed to take off.”

Ahluwalia pointed to the government’s policy of inclusive growth: “You cannot see a growth story unless it means something for the vast majority of the people, which is why we are talking about inclusive growth.” He said that the recent expansion to all states of the 2005 National Rural Employment Guarantee Act (NREG) “provides a floor to incomes in the lowest end of the economic spectrum.” (NREG is an Indian job guarantee scheme that provides a legal guarantee for 100 days of employment in every financial year to adult members of any rural household willing to do public work-related unskilled manual work at the statutory minimum wage of 100 rupees per day.)

But India faces many challenges if it is to become a leading global economy. Critical reforms in business infrastructure and administrative processes are needed to keep growth on track. There are still legal hurdles, high costs of doing business and the question of whether India can address its skills deficit. Significant public investment is needed to boost the ailing agricultural sector, which today accounts for one-quarter of India’s economy.

“Changes are taking place that will make India very attractive to foreign investors,” said Ahluwalia. He predicted that progress in education reform would ensure “a significant difference” in the quality of the labour force in the next five to six years.

India came through the crisis in “a very good way” compared to others and there is promise in the country’s reforms aimed at attracting foreign direct investment, said Lars H. Thunell, Executive Vice-President and Chief Executive Officer, International Finance Corporation (IFC), Washington DC. However, supporting the SME sector is crucial to creating jobs and realizing market opportunities. “There are huge market opportunities in countries like India. There is a new middle class coming up and there is purchasing power at the bottom of the pyramid.”

At the same time, effective models of public-private partnership are needed to address obstacles to higher growth and efficiency. Such partnerships are particularly critical in physical infrastructure, which will boost India’s appeal to foreign investors.

Rajat M. Nag, Managing Director-General, Asian Development Bank, Manila, said that the key to India’s sustained growth is governance and implementation. “There is enough money, but the laws that are there must be implemented more efficiently and effectively,” he said. “Over the long run, the [sustained] 9% growth rate is feasible and it is plausible, but it is not ordained. [However] we believe that India in one generation – 30 years from now – will be an affluent society.

However, India must expand its financial sector if it is to consistently achieve 9% growth, advised Kalpana Morparia, Chief Executive Officer, J. P. Morgan, India. She reminded participants that 40% of the current bank network is in rural India and covers just 6% of villages. The country must “think far more innovatively” about leveraging technology platforms. “Let’s not talk about a branch in every village, but a branch in the back pocket of every individual [or in every woman’s sari],” she said.

The World Economic Forum is celebrating 25 years of active engagement in India at its annual India Economic Summit, taking place in New Delhi from 8 to 10 November. This year’s Summit has set a new record for total participation with over 800 leaders from industry, government, civil society and academia from over 40 countries. The theme for this year’s Summit is “India’s Next Generation of Growth.”

The six top industry leaders serving as Co-Chairs for the Summit are: Shumeet Banerji,Chief Executive Officer, Booz & Company, United Kingdom; Carlos Ghosn, Chairman and Chief Executive Officer, Renault, France; President and Chief Executive Officer, Nissan, Japan; William D. Green, Chairman and Chief Executive Officer, Accenture, USA; Baba N. Kalyani, Chairman and Managing Director, Bharat Forge, India; Chanda Kochhar, Managing Director and Chief Executive Officer, ICICI Bank, India; and Indra Nooyi, Chairman and Chief Executive Officer, PepsiCo, USA