India's Prime Minister Dr. Manmohan Singh said India is in a position to sustain economic growth of 9 percent despite a possible global slowdown and promised to keep inflation under control.
Asia's third-largest economy is estimated to grow 8.75 percent this fiscal year, moderating from 9.6 percent in 2006-07 according to the International Monetary Fund.
However, high oil and food prices would make managing inflation a challenge for India in 2008-09, it said.
Inflation risks are to the upside due to rising international food and fuel prices, ample domestic liquidity, tight capacity utilizations, and rising skill premia, the Fund said.
Data released on Friday showed India's wholesale price index rose 4.07 percent in the 12 months to Feb. 2, a shade below the previous week's rise of 4.11 percent. However, Thursday's Rs.2 and Re.1 a liter increase in petrol and diesel prices respectively could push up inflation rate in the coming weeks. The central bank aims to keep it below 5 percent.
An important policy stance we have adopted to ensure that growth is more inclusive has been to keep inflation under check, said Singh, addressing a business conference on the occasion of the 80th Annual General Meeting (AGM) of industry chamber FICCI in New Delhi, Friday. I think no Government in our country can be oblivious to the objective of ensuring reasonable price stability without hurting the growth process.
According to the prime minister, inflation was an iniquitous tax and it hurts the poor more than the rich.
Therefore, it is essential that we ensure that the poor are not adversely affected by high inflation, particularly in basic items of consumption. This is a matter of social priority and of their survival, Singh said.
Singh also cautioned that there was a distinct possibility of a global economic slowdown as the effects of subprime crisis in the US spread.
There are global concerns of a slowdown. We need to be aware of these concerns and we will take steps to limit their impact on us, Singh said.
Though India is not completely insulated from chilly global winds that may blow in our direction, yet, the finance and commerce ministers are sized of the matter, the prime minister said. I believe that it is our responsibility today to ensure that uncertainty in the global system does not harm our growth process.
Earlier, IMF director general Dominique Strauss-Kahn said in India that emerging economies were not immune to the crisis in financial markets and would feel its impact sooner rather than later.
But Singh said one must not be over-concerned. There will be ups and downs, there will be leads and lags, there will be sectoral and regional imbalances. These should be addressed. But let us not miss the wood for the trees, he said.
There is an underlying dynamism in our economy and it is translating into more employment, higher revenues for the government, higher level of social expenditure, higher incomes and, most importantly, into lower poverty and better standards of living, the prime minister said.
I do not see any reason why we cannot sustain 9 percent growth rate even in the face of a global slowdown, he added.
According to Singh, the success of the economic growth rests on four pillars, namely, agriculture and rural development; infrastructure; education; and health care.
Assuring industrialists of steps to help them offset the impact of slowing world growth, Singh said that the government and business must be active partners in devising such a strategy and a road map.
Complimenting Indian business and enterprise for displaying their resilience in an increasingly integrated and competitive global economy with a new sense of confidence, Singh said, I sincerely believe the government and business can achieve a lot by working together to create both income and employment, wealth and welfare, prosperity and progress.
Our captains of industry have played a vital role in nation-building, he added.
Addressing the corporate leaders, Singh said construction of new roads, railway tracks, airports and other infrastructure was the cornerstone of India's development.
The prime minister said civil aviation was going through an unprecedented boom with two new international airports poised to start operations in the next few weeks in the southern cities of Hyderabad and Bangalore, apart from the ongoing modernization of the airports in New Delhi and Mumbai.
Singh also said the country's railway system has undergone revolutionary transformation in the past few years and expects companies to soon start investing in building logistics parks, railway stations and railcars.
Noting that the planned Rs.220,000 crore ($55 billion) investment in roads in the next five years would further boost the nation's infrastructure, Singh reiterated India's plan to almost double spending on infrastructure to 9 percent of gross domestic product by 2012.
Similarly the power sector was seeing a major expansion and private participation in power generation had revived, Singh said, particularly after the ultra mega power projects were launched last year.
''Overall, I see an increasing partnership between the public and private sectors in ensuring energy security for the country, the prime minister said.
Singh also said the sustainability of India's economic performance depends on the health of the agriculture sector and reiterated the government's commitment to resolve the problem of credit availability for the farmers.
We cannot have a situation where 80 percent of the farm sector is outside the formal financial system and suffers from excessive indebtedness, he said, adding, We are trying to resolve this problem.
Pointing out that the share of agriculture in the GDP has been declining, Singh said, We cannot minimize the importance of this sector, for our economy and our polity.
Agriculture is important, the prime minister said, because it supports a significant portion of the country's population and also acts as a social safety net.
According to the Central Statistical Organization (CSO) estimates, farm sector is set to grow at a sluggish rate of 2.6 percent this fiscal, against 3.8 percent last fiscal.
However, highlighting the fact that the government had announced two farm programs entailing an expenditure of Rs.35,000 crore ($8.75 billion) in the 11th Plan, Singh expressed optimism that the sector would grow at about 5 percent in the coming years.
While the Bharat Nirman program is helping develop rural roads, rural telecommunication and rural electrification, the rural employment guarantee scheme has pumped significant additional purchasing power in to the hands of rural households, the prime minister said.
We are looking at ways of having a quantum jump in investment in irrigation, Singh said, adding that funds allocation for agriculture and irrigation had been trebled for the Plan period.
The prime minister said that in the near future, India and China would be viewed as the new growth engines of the evolving world economy. We are not yet there, but we will be, Singh said, adding that India could sustain much better domestic performance based on its own efforts and realization of the immense potential.
Our macro-economic policies are aimed at ensuring this, he said.