The Hindu Business Line : More financial reforms needed, says Chidambaram

Hyderabad, Dec. 15 While highlighting the India growth story and buoyancy in tax collections during the current fiscal, the Union Finance Minister, Mr P. Chidambaram, expressed concern over the unfinished agenda in the financial sector, which he felt might severely constrain growth.

He said any further delay in bringing in reforms in the financial sector had the potential to adversely affect the high growth rate aspirations as these sectors require huge investments to sustain the current growth rates.

Delivering the Second Golden Jubilee Lecture on “High Growth: What it means, What it entails” at the Administrative Staff College of India here on Saturday, the Finance Minister said it was estimated that the Indian banks would need to raise Rs 1 lakh crore as additional Tier-I capital over the next five years.

This called for passing of new laws or amending existing ones. It was unfortunate that even after the Government had made it clear that public sector financial institutions would continue to remain under the public ownership, objections were raised on ideological grounds to the modernisation, he said.

“A period of high growth is rare opportunity. Many observers and studies have pointed out that it is possible to maintain the present momentum of high growth over the next 20 years. We must seize this opportunity. India has not yet arrived, we have just begun the journey,” he said.

Key ISSUES

The Finance Minister mentioned four key challenges that need to be addressed to sustain this kind of growth. These include the need to step up overall savings, bring about reforms in the financial services, accelerate infrastructure development and improve agricultural productivity.

Mr Chidambaram felt that it would not be too ambitious to aim for domestic savings of 40 per cent of GDP by 2011-12 as the draft XI plan envisages an average savings rate of 34.8 per cent.

To expand the savings base, he suggested the need to spread the concept of branchless banking and explore the possibilities of mobile, wireless banking and cellular phones.

infrastructure challenge

Referring to the infrastructure challenge, the Finance Minister said investment in infrastructure at 2006-2007 prices would need to increase from Rs 2,58,580 crore in 2007-2008 to Rs 5,71,315 crore in 2011-2012. This required new models of delivery could combine the Japanese skills of development and Chinese determination.

In the case of agriculture, while the share of agriculture has declined from 30.3 per cent in 1991-92 to 18.5 per cent in 2006-2007, the proportion of workforce dependent on agriculture has virtually stagnated at 52 per cent.

Mentioning about a national skill development mission, Mr Chidambaram said greater cooperation was required between the Government and private sector.

Mr Chidambaram said “a historic opportunity beckons India. We seem to be at the right place, at the right time and in the right century.”