Spokesperson: Good evening.
Prime Minister (PM): I believe you have the copies of my speech. If you want to ask any question.
Question: Significance of the summit/Results.
PM: Well let me say there is one important significance of the summit. It is a clear indication that the balance of power is increasingly shifting in favour of the emerging economies. We were previously also, for the last couple of years, being invited to the G8 meetings, but consultations were merely for the sake of form. Our views were not really taken into account, while they were formulating their viewpoints. This is for the first time there was a genuine dialogue between major developed countries and major emerging countries. So, I believe this is one reflection of the shifting balance of economic power and the western world, at long last has got to realise this reality. That is a positive gain. But also before I went, when President Bush first spoke to me about this idea, I had mentioned to him that there was a risk that if the meeting was not well prepared, it could be counterproductive.
Also, I was worried that the Europeans and the Americans may not be able to agree. And similarly, the emerging countries' point of view may not receive the attention that we would like, in which case there would be a clear picture of dissension, which would not be good for handling the financial crisis, or its aftermath, the recession that is now on the horizon. But I must tell you that the meeting could be described as a very successful affair. There was no attempt to score partisan points. It was recognized that the world was faced with a major financial crisis and it was now threatening to spill over to the real economy of both the developed and developing countries. And there was also the recognition that as far as the developing countries are concerned, though they haddone nothing to contribute to this crisis, they were probably the worst sufferers. The growth of exports was going down, the flow of capital and direct investment was slowing down.
There were attempts on the part of the foreign capital to fly out putting pressure on the exchange rate of a number of developing countries. Also there was a danger that the flow of remittance from overseas workers may also decline. Our concern was that in tackling the crisis, the developed countries must not lose sight of the impact of the crisis on the developing countries, particularly with regard to the achievement of the Millennium Development Goals. And all developing countries were united in making this demand that this crisis should not become an occasion to divert the world's attention from the development dimension of the human condition. There our point of view was that in a situation where private capital was not available for various reasons- market failures and all that, first of all there was need to mount a considerable fiscal stimulus to make good for the deficiency in private demand. There was complete agreement that a considerable fiscal stimulation was called for. In the present time inflation was much less of a danger deflation was the real concern which the world had to grapple with.
Therefore those countries which have the maneuverability should use fiscal stimulus to stimulate demand. It was also agreed that as far as the developing countries are concerned, infrastructure investment and its protection will be a major contributory factor to sustaining growth rates and therefore the International Financial Institutions, both the World Bank and IMF and the Regional Development Banks must come out with facilities to increase their assistance to these countries, and I was very happy that in anticipation of the meeting the both the Fund and the Bank came out with schemes. Though there are doubts whether the resources available with the institutions will be adequate to take care of all the demands that may build up. But there was the unanimity at the meeting that international financial institutions must be provided with adequate resources to meet the challenge of the crisis as far as developing countries are concerned. The committee also agreed on a work programme- Short-term medium-term, long-term. It agreed to meet again in April, to take stock of the situation. Meanwhile there is work in progress.
The improvement of standards, the other structural reforms of the system, the reform of the supervision and management systems of these and reform of the governance structure, particularly to the reform of the International financial institutions giving greater weightage to the emerging countries. These are some of the concerns, which were taken on board. Work is in progress. We will know after 3-4 months how the work proceeds and what emerges out of that. But for a meeting which was convened at such short notice, I must say the meeting was well prepared, and there was no attempt to score partisan points. The Chinese, the Russians, they all said that the communiqué was a document, which they could endorse and that I think is a positive feature of the outcome of this meeting.
Q: Discordance between the Bush administration and the incoming administration on fiscal stimulus package.
PM:Well, all I can say is that President Bush, in his closing remarks did touch on the subject of his relationship with the incoming administration. He said that the coming administration has been fully briefed about what was happening, what will be the outcome. And he was therefore hopeful that there will be broad convergence of views, but I am not an expert on American politics to predict what will be the shape of things when the new administration takes over.
Q:Peculiar situation when someone is on the way out-
PM:But the situation is so serious that you cannot wait until 20th January, because the financial crisis is now spilling over to the real economy and for the world to say that it will do nothing until then, I think, would not be a very responsible act so. So despite all the uncertainties associated with the change of administration I think the
message that is coming from the meeting is that the world's leaders met, they are greatly concerned about what is happening, they are committed to find practical, pragmatic solutions to this problem, they are confident there is, today. the willpower among the world's leaders to act and act decisively
Q:You had predicted that growth rate would be impacted.
PM:Well, let me say, I don't take credit, but I think Finance Minister, Mr Chidambaram, and I had anticipated, I think, that there is likely to be a global slowdown this year. Therefore, in preparing for the budget for the current year, we had at that time said that, it appeared that we had taken excessive risk with regard to the budget deficit, but conscious of the fact that that a global slowdown was on the horizon we budgeted for a very substantial amount of deficit, precisely to take care of the slack that may emerge. So as far as our economy is concerned, I think, our fiscal stimulus is already on. The fact that we have given record prices to the producers of wheat, to the producers of a rice; that 71,000 Crores of loans have been written off, we have a very extensive programme for social service expansion, infrastructure expansion. So as far as India is concerned, fiscal stimulus is by and large already in place. We have already taken steps to provide more liquidity, if more is needed, we will do more.
Q:Is there anything else which is being given apart from what is already provided for? What is the next fiscal stimulus package that can be expected?
PM:Well, I think this is not a once and for all process. We are keeping the situation under review on a day-to-day basis. The Reserve Bank is at it, the Finance Ministry is at it. I'm heading a committee with Finance Minister and the Commerce Minister. So whatever is needed to keep the economy on an even keel will be done. And fortunately inflation is now becoming less of a problem and if you look at the inflation from a different angle, Its' de-seasonlized data. The situation is turning out to be much better on the inflation front than is evident from this year-on-year figures. That will give us greater maneuverability to deal with the economic situation.
Q:We should be more proactive in cutting interest rates
PM:I think as far as interest rates are concerned, that is the preserve of the Reserve Bank of India. It would not be proper for me to comment on this but as I said this is an evolving situation, if inflation rate comes down, if we feel confident that inflation will not be a problem, there is scope for maneuverability, both in more aggressive use of monetary policy and more aggressive use of fiscal policy.
Q:Failure of capitalism as an ideology or a mistake
PM:Well, obviously financial capital certainly has shown weaknesses. There has been lack of supervision, there has been too much faith that self-interest will make people behave in an enlightened manner. So these are weaknesses of the system, the financial system regulation has been ineffective. But I don't believe that these are inherent in
Q:Left is saying that they have saved the nation by not allowing pension bill.
PM:But what has that got to do with this. Even if the pension bill was not there, I don't see the world situation would have been different. We are a small player. So the global crisis is not a crisis which is the result of the wrong policies of Government of India. It is a crisis made outside India. We are the victims of that, we are not the cause of that.
Q:Oil prices have come down. Do you intend to respond?
PM:Well we will look at all options. We have, I think still a very considerable deficit on the oil account. This is as I said an evolving situation.
Q:Consensus on your point on protectionism
PM:Yes there is a general agreement that protectionism would be a wrong response to the present situation. It would only accentuate the crisis. It would only, beggar thy neighbor policies, they have never worked in the past. They only slowdown and lead to decline of economic activity all around. So there is in the communiqué, I think, a
reaffirmation that all countries will resist a recourse to protectionist tendencies.
Q:Impact on Doha Round
PM:Well there is. A part of the same communiqué states that this gives urgency to that task of completing the Doha round as early as possible
Q:Capital account convertibility and banking review as stated in speech at RBI in 2006
PM:Well, let me say that what I stated when I went to the Reserve Bank some two years ago, I said that the whole issue of capital account convertibility needs to be relooked at. There was a Tarapore Committee Report, so I suggested that maybe Tarapore should be asked to relook and revisit. I did not pronounce anything that we were going to have capital account convertibility or when. So it was a suggestion and Reserve Bank followed it up. And that report is a
Q:Banking sector review
PM: This is a question about FDI in banking- (indicates to FM)
Finance Minister (FM): The notification was made towards the end of the NDA Government in January-February 2004. All that we said was that since the notification has been made, we will allow foreign capital in private-sector banks. That applies to any other Indian capital also and we will remove that voting cap. So even if any Indian investor wants to buy shares in a private-sector bank, he is subject to a voting cap. So as long as there is a voting cap new capital will not come into a private-sector bank. That amendment had been introduced in the parliament, to review the voting cap but to introduce section 12 (A) under which the RBI as the regulator has to approve any investor's increase in equity by every 5%. So while voting cap is removed under section 12, section 12 (A) is introduced to get regulatory approval. That bill is in Parliament. So whether it is foreign capital or Indian capital into a private-sector bank, as
long as this cap is there no capital is going to come.
Q:Is the government satisfied with the way it has handled the situation? Will the people of this country vote the government back?
PM:Well, I think we have done reasonably well and I sincerely hope that the people of India would repose their confidence in us.
Q:When this crisis would get over?
PM:I am not an astrologer. I think there are apprehensions that we haven't seen the worst of the crisis. So, there are conflicting viewpoints. Our efforts must be to contain and rollback the crisis. But how long will it take, I am afraid, I cannot pronounce with any sense of authority.
Q:Apprehensions in India about Obama regime
PM:No, no. From whatever feedback I have, I think we have no reason to be apprehensive about the change of regime in the United States. I think there is general recognition in the US regarding the role that India can play, India should play. There is considerable appriciation of the way Indian economy is managed. And more recently, also Obama
did send, I think, Madeleine Albright and former Congressman Leach to interact with us. They have given us all the positive indication, so there is no reason to have any doubts about the intentions of the Obama administration towards India.
Q:Approaching elections and response to the crisis
PM:Well, I think, as I said the crisis is not our making. What I would like is for the people of India to judge us by the response of our government to this crisis. We acted in time, and while the rest of the world is in doom and gloom, we will still maintain a growth rate of 7.5%. Growth with stability, more socially inclusive growth is a
reality and will remain a reality despite the onslaught of the adverse turn in our external environment
Q:Will the crises postpone/hasten elections?
PM:It has no bearing on the elections. Elections will be held on schedule
Q: (inaudible) about IMF
PM:Well, there is. The Committee has endorsed that more resources should be provided to the IMF and to the World Bank. At the meeting itself, the Japanese government announced a loan of hundred billion dollars to the IMF. So on the whole I think, the climate in the developed world is to recognize that international institutions need extra resources if they are to come to the rescue of the emerging countries and other developing countries.
Spokesperson: Thank you.