En route from the G20 meetings in China, India's Finance Minister P. Chidambaram addressed a gathering organized by the Indian Chamber of Commerce in Hong Kong over dinner. Harvard-educated Chidambaram, who is currently serving his second term as the country's finance minister (the first was 1996-98), was at his razor sharp best, delivering a short address with panache and dexterously fielding difficult areas and questions with humour and sarcasm.
Chidambaram began by saying that the fact that India is doing well is obvious to any "discerning" observer but that non-Indians and non-resident Indians often display greater faith in India than those who live there. He also said people shouldn't panic every time the Indian stock market fell a few hundred points. (The Sensex index recently corrected by about 10% to the 8,100 level.)
He stated that the priorities of the current government, are agriculture - since 65% of the country's population is dependent on farming - as well as infrastructure and maintaining investment levels. Chidambaram said the 32% growth in non-food credit since September 2004 reflects the growing demand for credit from industry, which was an extremely positive indicator.
Perhaps preempting the inevitable comparison of infrastructure in India and China (which can only find India lagging badly), Chidambaram said that his visit to China left him astonished at the remarkable transformation the country has effected, specifically citing highways, power supply, commercial buildings, and housing. He commented that roads in China's main cities might be better than those in the US and Europe. Yet, he said India cannot be more like China because India is not China. He noted that India has a different form of government and hence has to develop its economy within its existing constraints - one of which being the fact that the current government is a coalition (with the Congress Party clearly not having a majority of the parliamentary seats). "I do not envy China but I do wish to emulate China," he said.
Chidambaram moved on to talk about what he believes is India's most compelling advantage, the country's human resource pool, saying that every country he visits recognizes the quality of Indian talent. He specifically mentioned that in addition to India's pool of professionals the country has spawned a new breed of entrepreneurs, people willing to take risks. Chidambaram said the days when multinational corporations were acquirers of Indian companies have been replaced by the opposite. Indian companies in various sectors - pharmaceuticals, automobile components, forgings - are on a buying spree. He singled out the September news that Indian Oil Corporation had lost a bid for Turkey's state-owned Tupras to Shell-Koch by just $20 million as another instance of how much things have changed from the days when the flow of capital was only one way.
Returning to the economy, he believes that a 7% growth rate is sustainable although his target remains 8%. He suggested that one of the keys to achieving this target was to convince Indians to switch their savings into financial assets and away from gold and property.
Responding to a question on India's tax structure Chidambaram said "personal income tax in India is a graded tax like most countries" and that "Hong Kong's flat tax regime could not work in a country the size of India with its vast income inequalities". When quizzed about Standard & Poor's continuing to deem India non-investment grade due to the country's high fiscal deficit Chidambaram was at first defensive. He then said the previous government had targeted containing the fiscal deficit to 4.7%; this government revised this further to 4.5% (for their first year and 4.3% for their second); and had already achieved 4.1% in its first year. The government, he said, remains committed to bringing the fiscal deficit to 3% or lower by 2008-09.
On a positive note Chidambaram concluded: "Today the world talks about China and India in the same breath. China and India along with Brazil and South Africa are invited to G7 meetings - currently we are invited to breakfast, soon we will be invited to lunch".