INDIA: In Search of 'Mind-boggling' Amounts of Investments from Europe
By Peter Dhondt
BRUSSELS, Jun 13 (IPS) - The Indian economy can start growing by 10 percent a year if India is able to attract the huge investments it needs in infrastructure and agriculture, including from Europe.
That is the message thart Indian Finance Minister Palaniappan Chidambaram -- a firm believer in free trade, sought to deliver at a seminar here organised by the European Policy Centre (EPC) and the Tokyo-based Sasakawa Peace Foundation. The seminar is the first of a new series on Asia-Europe issues.
India is still not among the heavyweights in European trade statistics. In 2004, only 1.6 percent of European imports came from India. But that is bound to change. By 2026, India's economy is expected to be one of the three largest in the world, and by 2050, it could be larger than the U.S. economy.
The Harvard University-educated Chidambaram is thinking big. "We will preserve our leadership in the international services sector, but we also intend to make India a hub for manufacturing," said Chidambaram. "We are already among the world's leaders in textile, leather, steel and pharmaceutical products, and many other sectors can follow."
But that is one of the medium-term goals. First, the country of 1.2 billion people will have to improve its underdeveloped or outdated infrastructure - ports, highways, railroads, energy and communication networks. The incredible effort is already underway, Chidambaram stressed. "We are currently building 4.2 kilometres of
main roads a day. One kilometre costs six million dollars. And India is establishing five million new mobile telephone connections a month - a massive investment as well."
But much more needs to be done. "Every year, India needs 10,000 megawatts of new power generating capacity. A thousand megawatts costs one billion dollars. These are mind-boggling investment amounts, but we have to mobilise them." Especially because India is also using large amounts of public funds to make agriculture, the mainstay of the majority of Indian poor, less rain dependent. "Our goal is to bring 10 million hectares of land under irrigation the next five years", said Chidambaram.
The bulk of the money that India is investing now comes from Indian sources, although foreign investors put in more than a record 10.5 billion dollars last year. "We realise the importance of foreign investment," said the finance minister. According to him, companies or investors from abroad introduce new ideas, new technology and new contacts. But Europe still has to wake up to the Indian call. In 2003 and 2004, only 0.2 to 0.3 percent of European foreign direct investment went to India.
India is not growing for the sake of growing, Chidambaram explained. "Growth is the best antidote to poverty, it is not sufficient, but imperative", the finance minister argues. Apart from that, India has to create jobs for the eight million youth that enter the labour market every year. "India is the only big country where the size of the working population still grows. That is a demographic
advantage, but we have to frame economic policy accordingly."
Only a fast-growing economy can give India the revenue that is necessary "for the desperately needed investments in infrastructure, education, health care and rural growth," Chidambaram continued. And India also simply needs to grow fast "to catch up with developed countries and prevent that India keeps being outpaced by countries like China".
Europe can and should do more than just invest in India.
Chidambaram sees several external factors challenging growth in India. The first are high oil prices. "In my view, there is no justification for these outrageous prices. It's worse than in the colonial age. The colonial masters robbed our cotton and our iron ore, but now, even our vital growth capacities are destroyed. The world has to unite to find a solution to this crisis."
European and other countries can also play a role in keeping two other threats under control: global imbalances resulting from the fact that "some countries run huge deficits and others build up huge reserves", and rising interest rates that might reverse capital flows in the world.
Maybe even more important, Chidambaram said, he is waiting for a "reasonable offer" on agriculture from the developing countries that might restart the international negotiations on trade liberalisation. Together with other developing countries, India would like Europe and the United States to remove agricultural subsidies and market
protection before agreeing on measures to further reduce industrial tariffs and start negotiations about trade in services and investment rules. "Everything depends on agriculture", Chidambaram concluded. (END/IPS Asia-Pacific)
