Emphasise more on inclusive growth: Ahluwalia

The bureaucrat opens TAPMI Knowledge Centre in Manipal

Speaking after inaugurating T A Pai Management Institute (TAPMI) ‘Knowledge Centre’ here in the College campus on Tuesday, he said that five years before the crisis, the economy grew at 9 per cent per year, testifying to the success of the economic reforms. “In fact, we have performed much better than most other countries. In deed, India is the second fastest growing country in the world today after China,” he added.

He stressed that there are new challenges to achieve the growth rate. In this direction, financial sector has to support multi-dimensional economic transformation for next 20 years. Transformation poses the inset of financial changes. This challenge essentially required huge investment by the financial sector in the development of infrastructure like roads, power, telecommunication, water and urban infrastructure. Only 30 per cent of the Indian population live in urban areas which is a slow growth. In the coming years, this will be increased posing a big challenge of huge investment in urban infrastructure. To meet the challenge of providing infrastructure to urban and rural municipalities, both the centre and the state governments should borrow money through financial institutions, he said.    

He said “Growth in per capita income is more important than mere GDP growth. If India’s population was to double and per capita income was to be the same we would have to double the GDP but there would be relatively little structural change. However if per capita income doubles then there is major structural change,” he explained.

 He said that more emphasis should be given to inclusive growth and investment both in terms of Foreign Direct Investment and portfolio flow. The schemes like National Rural Employment Guarantee Scheme have enabled the poor with cash flow in their hands resulting in opening of more bank accounts, he added.
He also said that financial sector should pay attention more on financial innovations and financial risks.

Strike balance

Delivering the key-note address on ‘Next stage of India’s economic growth -redefining the role of banking and financial institutions,’ Indian Council for Research on International Economic Relations (ICRIER) Chairperson Dr Isher Judge Ahluwalia stressed that there was an urgent need for striking a reasonable balance between financial openness that supports innovation and growth, while implementing regulations and effective supervision that limit the potential risks of the financial excesses.

The past two decades have seen a great deal of financial innovations world over. New financial products, complex derivatives, securitization etc were the ways in which the banks attempted to spread their risks on loans that originated in their balance sheets. Asset price mismatches and irresponsible ratings provided by the credit rating agencies meant that risk rather than being distributed was actually accelerated, she said.

Isher said that the Asian crisis of 1997 brought the focus back on the financial sector. It highlighted the weaknesses that arise in poorly supervised banks in open capital markets and the consequences were for all to see.

However, the relatively less open capital accounts and highly regulated nature of financial sector in India meant that India’s financial sector was relatively insulated from this upheaval, she said and added that greater attention was also paid to capital adequacy and prudential norms for banks in lending based on the recommendations of M Narasimhan committee on strengthening the Indian financial sector.

Manipal University Chancellor Dr Ramdass Pai, Pro Chancellor Dr H S Ballal, TAPMI Director Dr Saji Gopinath and others were present.