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Owing to India's buoyant growth and a strong domestic economy, the effects of recession in the US will not have a huge impact on the country. This was revealed by Mr. K.T. Chacko, Director of Indian Institute of Foreign Trade (IIFT) and former Director General of Foreign Trade (DGFT) in an exclusive interview to tradeindia.com.
"A slowdown in the US economy would filter down to all countries of the world including India. Since India is going through a phase of buoyant growth and has a strong domestic economy, the impact here would be a lot less than other countries of the world," he said.
When asked whether India's robust economic growth can be sustained by its domestic consumption alone, unlike China where exports drive the economy, he said, "consumption is not a dirty word and that this in turn would boost manufacturing, which would eventually help the country achieve high industrial growth."
In regard to the grant of Market Economy (ME) status to China under the WTO rules and regulations and the possible implications of the same on the Indian economy Mr. Chacko said, "ME status to any country has to be earned by the country concerned and not awarded to it randomly. In this regard a number of variables need to be ascertained like for example the input prices and labour laws."
"Some more distance needs to be covered before India could grant ME status to China. A Regional Trade Agreement (RTA) or a Free Trade Agreement (FTA) with China is a long way off," he added.
Regarding the rupee appreciation Mr. Chacko said, "the fact that the rupee has risen considerably is in itself an expression of the confidence levels imposed in the country by foreign investors (in regard to huge inflows of foreign currency pouring into the Indian economy)."
But he expressed serious concern about the appreciation happening "too soon and by a significant quantum thereby hurting exporters considerably."
(To be concluded...)
Certain sectors of the Indian economy which are primarily export-oriented like handicrafts and textiles have felt the impact of the rising rupee much more than some other sectors. Against this backdrop he felt that the government could provide subsidies to such exporters to cushion their losses.
When asked whether the RBI gave more emphasis on inflation control rather than on growth by not lowering the benchmark interest rates in response to a cut in the same by the US Federal Reserve, he felt that, "RBI was the best judge of this and it had possibly taken into consideration all external as well as internal factors before taking this decision bearing in mind the overall interests of the economy."
However, he was in full agreement with the dismal infrastructural scenario in India and suggested that the government urgently needed to do something about it.
"The Turn Around Time (TAT) in India was one of the longest in the world and this needs to be changed," Mr. Chacko felt.
On the need to make labour laws more flexible, Mr. Chacko fully agreed on the issue, but also emphasised that a "balanced approach needs to be worked out so as not to dampen growth and investment."
"Having said that, the interests of the working class should also be taken into consideration when these reforms are incorporated," he added.
When asked whether India had the wherewithal to compete effectively with a much larger and more populous China, the former DGFT said that it is possible for India to overtake China since "India's fundamentals were strong. In terms of irrigation facilities and average farm size, India was indeed ahead of China. But a lot more had to be done to increase the productivity per hectare in which area India was lagging far behind its eastern neighbour."
Mr. Chacko opined that the time had come when India graduated to becoming a knowledge-based economy which could happen only if India filed more patents. This was one area in which India was trailing behind its fellow competitors.
When asked whether he sees the Doha round of talks being concluded in the foreseeable future, he replied in the negative and said that "it would be very difficult to resolve the deadlock given the fact that the developed world hasn't set any time frame in doing away with their domestic subsidies."
About the proposed unified goods & service tax (GST) regime, which could spell an end to various kinds of exemptions enjoyed by the corporate sector including area-based exemptions and sectoral tax breaks, Mr Chacko said, "the Group of Experts undertaking the responsibility of structuring a GST are making a brisk progress and I hope this tax would see the light of day by 2010."
"All apprehensions about the impact of the tax on the economy would be dispelled once it comes into operation," he added.
(Concluded...)
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