PRIME MINISTER Narendra Modi on Tuesday said that his government is committed to the path of fiscal consolidation and the economy is in a “bright spot” with strong macroeconomic fundamentals like lower inflation, foreign exchange reserves of over $ 400 billion and robust foreign direct investment flows.
Stating that a “new India” is rising, Modi said, “India’s economic resurgence closely mirrors that of many other parts of Asia and has become the main growth engine of the world now.”
Addressing the third annual meeting of the Asian Infrastructure Investment Bank (AIIB) here, Modi said the government’s debt as percentage of GDP is consistently declining and India has achieved a rating upgrade after a long wait. The government had said in the Union Budget in February that the fiscal deficit will overshoot to 3.5 per cent from the earlier estimate of 3.2 per cent in the fiscal ended March 31, 2018. The fiscal deficit target has been fixed at 3.3 per cent for 2018-19, against the Fiscal Responsibility and Budget Management Act target of 3 per cent.
Modi said India is one of the most investor-friendly economies in the world with macroeconomic and political stability and a supportive regulatory framework. “From the point of a foreign investor, India counts as an extremely low-risk political economy. The government has taken a number of steps to boost investments. We’ve simplified rules and regulations for businesses and undertaken bold reforms,” he said.
“Our macroeconomic fundamentals are strong with stable prices, a robust external sector and a fiscal situation firmly in control. Despite rising oil prices, inflation is within the mandated range,” he said. Modi’s comments came after retail inflation rose to 4.87 per cent in May — above the Reserve Bank’s target of 4 per cent — and the RBI hiked the repo rate by 25 basis points to 6.25 per cent.
According to the Prime Minister, the continent finds itself at the centre of global economic activity and has become the growth engine of the world. “In fact, we are now living through what many term as the ‘Asian Century’,” he said.
Showcasing India as the investment hub for the world, Modi said: “Global confidence in India’s economy is rising. Total FDI flows have increased steadily — more than $ 222 billion has been received in the last four years.”
According to Modi, the size and growth of the Indian market hold much potential. India’s per capita income has doubled in the last decade. “We have over 300 million middle-class consumers. This number is expected to double in the next 10 years. The size and scale of requirement in India gives the added advantage of economies of scale for investors,” he said.
Listing steps taken by the government, such as simplifying rules and regulations for businesses, liberalising the FDI regime and implementation of the Goods and Services Tax (GST), to make the country a preferred investment destination, he invited more investments in the agricultural sector. “Agriculture is the lifeline of the Indian economy. We are promoting investments in warehouses and cold chains, food processing, crop insurance and allied activities. We are promoting micro-irrigation to ensure optimal use of water with increased productivity. I would like AIIB to look into potential investment opportunities in this field and associate with us,” he said.
“India and AIIB are both strongly committed to making economic growth more inclusive and sustainable. In India, we are applying novel Public Private Partnership models, Infrastructure Debt Funds, and Infrastructure Investment Trusts to fund infrastructure,” he said.
India is trying to develop brownfield assets as a separate asset class for infrastructure investment. Such assets, having passed the stages of land acquisition and environment and forest clearances, are relatively de-risked. Hence, for such assets, institutional investment from pension, insurance and sovereign wealth funds are likely to be more forthcoming, said Modi.
Speaking on the need for better access to education, healthcare, financial services and employment opportunities in Asia, he said that institutions like AIIB can play an important role in raising resources. “Sectors such as energy and power, transportation, telecom, rural infrastructure, agriculture development, water supply and sanitation, environment protection, urban development, and logistics require long term funds. The interest rates on these funds need to be affordable and sustainable,” he said.
India is the second largest shareholder of AIIB with a stake of over 8 per cent and the largest beneficiary of its funds. In a short period, AIIB has approved 25 projects in a dozen countries with a total financing of over $ 4 billion, Modi said. “This is a good beginning. With committed capital of $ 100 billion and a huge need for infrastructure in member-countries, I take this opportunity to call upon the AIIB to expand from financing $ 4 billion to $ 40 billion by 2020 and $ 100 billion by 2025,” he said.