The slowdown of the Chinese economy and fluctuations in its stock market are among the external challenges facing the Indian economy, finance minister, Arun Jaitley has said, adding that New Delhi will focus on domestic demand to ensure growth.
He said India was equipped to tackle external challenges like the “…possible rise of oil prices, political threats in the Middle East, fluctuation of China’s financial markets and the slowdown of the Chinese economy”.
The growth of China, the second largest economy in the world, has slowed down to less than 7 percent in several years. And last year, sudden volatility in its stock market wiped out billions of dollars.
In a globally integrated market, it had an impact on many countries including India.
But such challenges could be tackled in three ways by India, Jaitley said.
“First, India must cement its “firewall” to deal with challenges by ensuring a steady macroeconomic environment and properly managing its financial situation; secondly, due to the sluggish external market, India must rely on its domestic demand and Indian market to prevent the slowdown of economic growth; finally, India must continue its economic reform, launch reform policies so as to enhance people’s living standard,” the Indian finance minister wrote for the influential business and political magazine, Caixin.
Speaking to Indian reporters on Friday, Jaitley had said it might seem “optically” that China’s growth has slowed down but “effectively for an economy of this size, 6 percent to 7 percent is still a very significant growth”.
Jaitley is on five-day China tour, where also addressed the ongoing first annual session of the China-led Asian Infrastructure Investment Bank (AIIB) on Saturday, besides meeting Chinese companies and potential investors.
The China-led Asian Infrastructure Investment Bank (AIIB) could meet India’s need for about $2 to $3 billion to fund the country’s urbanisation drive, he said.
“India has a huge unmet demand for investment in infrastructure and is preparing basket of projects worth US$ 2-3 billion for AIIB funding in the areas of Urban Development (including Smart Cities), Energy, Urban Transport, Railways, Inland Waterways and Water Supply,” Jaitley said, in his address to the first annual general meeting of the bank.
“Outlining India’s development paradigm, the FM stated that India has undertaken reforms in FDI and initiated large investments in rural infrastructure, national highway, inland waterways, shipping, power sector and smart cities etc,” an Indian embassy statement quoted him as saying.
Jaitley offered India’s support in establishment of a “regional office of AIIB in New Delhi to effectively cater to this potentially large portfolio and speed up the process of project development, monitoring and implementation.”
In a separate interview to national broadcaster, China Central Television, Jaitley said India’s growth rate of 7.6 percent in 2015 was not only sustainable but with a good monsoon this year, could be improved upon.
Asked whether India can sustain the high growth rate, the finance minister said it was possible because of the massive economic activities that could go into building infrastructure in India.
“It (the growth) is sustainable for the reason that India still has a lot of distance in terms of economic growth to cover; the potential for investing in infrastructure, the potential for urbanisation, in housing, in power, in electricity, in water, in the social sector…For us even today the sky is the limit…that’s the kind of investments we require,” Jaitley said.
He then linked it to the potential for economic activity.
“And therefore a lot of economic activities have to go into it. Currently, public finance is taking the leading in doing so. But I am sure in due course, as the economy picks up, the private sector will also boost this,” he said.
“Secondly, we have grown in the last two years despite the fact that we had a less than normal monsoon, and monsoon plays an important role in India’s economic growth,” he said.
“This year hopefully, the monsoon seems to be broadly alright. And, if we have a good monsoon this year, that itself boosts the rural economy, rural purchasing power, and therefore, it adds to the economy,” he said.
“We grew by 7.6 percent last year will certainly maintain that and with a good monsoon, hopefully improved upon that,” Jaitley said.