US Treasury Secretary bullish on India

US Treasury Secretary bullish on India
ENS ECONOMIC BUREAU

MUMBAI, JANUARY 17: The stock markets are not the only ones who are bullish on India. US Secretary of Treasury Lawrence H Summers, who is on a visit to India, has predicted a 10 per cent economic growth, provided the Indian government policies are conducive enough to ignite the explosive economic growth by creating world-class infrastructure and plugging subsidy loopholes.

Addressing a Confederation of Indian Industry meeting here today, Summers said the economic developments in India have the potential to transform in two decades not only India, but the world economy and the US has great stake in what happens here. ``The 6.5% growth rate that India has achieved in recent years is impressive. But 10 per cent growth is well within India's grasp. At that pace, Indian standards of living would be five times higher in 2020 than they are today,'' he said.

The obstacles for economic growth, he said, are the lack of infrastructure, decreased global capital and misdirected subsidies. ``Indian software sectorbloomed as software parks were freed from the tariffs and high tax rates that still prevent the bulk of Indian industry from competing abroad. Indian exports grew by 130% in the 1990s but in China that grew nearly twice that amount during the decade. And China's stock of foreign direct investment as a share of GDP is 8 times higher than India's,'' he said.

Similarly, he said, software firms and data processing companies have been able to leap frog the failing of India's creaking infrastructure like the clogged ports and segmented transportation networks which means that goods that take three hours to ship abroad in Singapore, in India, take three days. Besides, 14 per cent of GDP that might have been flowing into India's growth industries was instead spent on ill-targeted public subsidies.

On reasons why India saves itself from East Asian melt down, Summers said it reflects India's policy of very limited international financial engagement. ``It seems to me that India's lack of reliance on short termcapital flows, low level of external debt and small share of trade in economy have played a role. But over a time, when one need to to the economic opportunities available in India, greater involvement in the global capital market will need to play a role,'' he emphasised.

``With a strong commitment to openness, to a more efficient and competitive financial system and a new role for the state that works more to complement market than exclude them, I would expect India to be one of the largest economies in the world in less than a generation,'' he said. The challenge, he said, is to reconcile three widely shared objectives realising the benefits of trade and integration; support of public purpose in areas such as promoting environment and regulating financial risk."