RIDING THE ELEPHANT
After 17 months in office, India's Prime Minister Manmohan Singh, a Cambridge-educated economist, talks about his country's accelerating growth.
(FORTUNE Magazine) – Manmohan Singh, who helped start India down the road of economic reform as Finance Minister in the early 1990s, became Prime Minister in May 2004. FORTUNE's Rik Kirkland spoke with him during his visit to the U.S. in September.
What does this year look like in terms of GDP growth?
The last two fiscal years we've had a growth rate of over 7%. This year we expect to repeat that performance. If you look at the last 15 years, the general growth rate in our economy has been about 6%. It's our ambition in the next couple of years to move the growth rate up to at least 8%, and maybe 10%. The basic reason is that India's savings rate has shot up dramatically in recent years, from around 22% of our GDP to about 28%.
Is that private or corporate savings?
That's personal, corporate, and government. The government, of course, doesn't save much, and one reason why there should be a further sharp increase in the savings rate in the coming years is that the proportion of working-age population to total population is going to rise sharply. That would enable us to finance much larger investment outlays than in recent years. And our biggest needs lie in physical infrastructure, where our investment in the next seven to eight years is a minimum of $150 billion.
All financed from domestic savings?
The bulk of resources for India's development has always been mobilized domestically. But we expect foreign savings to play a more important role. Last year $5 billion came by way of foreign direct investment. So if we can increase this figure by about $10 billion per annum ...
And how will you do that?
Most sectors of the economy are open for private direct investment. Recently we opened up the real estate sector. One sector that is not open at this stage--and there is a lot of demand for it--is retailing. We have not made that decision yet. There are still some hesitations. But over a period of time this will open up.
India's IT sector has experienced fantastic growth in recent years. But don't you need to do more to encourage manufacturing?
We need to pay a lot more attention to manufacturing. And the Indian manufacturing story is going to look better and better in years to come. In the last five years Indian manufacturing, under the pressure of international competition, has become leaner, meaner, and more efficient. You hear of more and more Indian companies not only doing well in India but acquiring companies abroad.
Is private business doing a better job, or is it macroeconomic policies?
Macro policy has an effect if we're mismanaging the economy, if we get into a balance-of-payments crisis, or if we have reckless inflation. I don't think that's happening--our inflation rate is currently about 3%. So I don't think the economy is overheated.
You had a lunch recently with business leaders in New York. Was there a message from those U.S. CEOs?
Most people say, Improve your infrastructure. Second, improve the way the bureaucracy functions. People say policies are right, but the approval procedures take too long. They say there are too many layers of government to deal with. Partly it is inevitable, because we are a federal system. But we have to find some institutional mechanisms to give one-place clearances on behalf of both the central state and local authority. It will take time, but we have to do it.
Are your reforms moving fast enough?
They are not moving fast enough for my taste. But politics is the art of the possible. We are a relatively slow-moving elephant economy, but when the elephant does move, it makes a sizable difference.