India’s financial sector sound, assures AhluwaliaMore room for interest cut; high deficit not to hamper FDI; 7% growth rate achievable. $ no more a reserve commodity, says Jim Rogers; invest in commodities not bonds

Dr. Montek Singh Ahluwalia

The deputy chairman of the Planning Commission and the brain behind the economic resurgence of India, Dr.Montek Singh Ahluwalia told the 13th Annual Wharton India Economic Forum (WIEF) through a video link from New Delhi that India’s financial sector was sound and India’s central bank has “more room” to cut interest rates further to combat economic slowdown and a global recession.

“Fortunately, we have more room for further relaxation unlike some of the industrialized countries where the scope for monetary easing has been pretty much exhausted,” Ahluwalia said. “The new government when it comes into place probably in early June will almost certainly continue the fiscal stimulus policies we have followed,” he said adding, “We will use the opportunity, the scope that is available for monetary policies, to support these fiscal policies.”

Growth this year may be “less than 7 percent,” while the government had expected it would be about 7.1 percent, Ahluwalia said. That’s “certainly not a bad growth rate,” given the global recession, he said. The financial crisis has “had an impact on the real economy” through India’s trade and investment links with the rest of the world, he said

Ahluwalia said growth over the current fiscal year and the next may average 6.5 percent. He didn’t make a specific forecast for the coming fiscal year. The country is experiencing “some withdrawal” of foreign private capital, though that will return once the global economy recovers and if the new government keeps policies in place, Ahluwalia said… “Still India is “well positioned” and the government’s stimulus efforts are aimed at investing in areas such as infrastructure to correct the “neglect of the past.” India’s financial sector is in “pretty strong shape.”

The high fiscal deficit will not in any way hamper the flow of foreign investments, said Ahluwalia. He however admitted that the fiscal deficit could rise but this should not be construed as slowdown in the economy. “The high fiscal deficit due to economic down turn is a global phenomenon and India is no exception,” he claimed. Replying to a question on job loses, he said when the growth rate has come down to seven percent in place of 8-9 percent, and this is quite possible. “We are targeting 9 percent growth in the medium term and getting up to 10 percent.” He termed the target “quite achievable”, saying it “may look ambitious with a slowdown in the global economy, but is achievable in the medium term.”

He said the problem of inflation was short term and would moderate in due course, as the government has taken several monetary and administrative measures to rein in inflation. “I have no doubt that it can be sustained — but when I say that, it does not mean it is going to happen even if we don’t do anything.

“In order to bring that to an average of 9% in the next five years, to my mind, essentially requires continuation of the macroeconomic and policy environment that we have had. In addition, it requires a major effort on infrastructure. That is the big constraint. We are also focusing a lot on agriculture, not because it is a very large part of the GDP, but because it is very crucial for India’s growth to be inclusive. There is the whole issue of whether we are leaving our rural areas behind as the economy grows. Broadly, if we can take care of agriculture and infrastructure — both of which are critical focus areas — then an average growth rate of 9 percent won’t be a problem.”

Indian politician a major problem American investor and financial commentator Jim Rogers hit the road in the early 90s, crossing the globe by motorcycle, and chronicled the adventure in his 1994 book, “Investment Biker.” Later, he used a car to make the trip, primarily at the urging of his wife Paige Parker covering 152,000 miles, through 116 countries, taking three years to complete and the net result was another best seller book “Adventure Capitalist” Roger feels “India’s politicians are one of the “major problems.” Speaking via video link from Singapore, he said India has the “single worst bureaucracy in the world.” If a person can deal with that, “there are fortunes” to be made by investing in India, he said. “India and China will be the next growth engine of the world. I tell people to go back to India and China as that is the place where things are happening. However India must put its acts together. The next century will be the success story of India and China,” he said adding that while there were 40 percent savings in these two countries there was just two percent saving in the USA.

“The dollar was under attack and the once powerful dollar was no more the world reserve commodity,” he said, India and China have prospered as it has moved away from the dollar.

Rogers a strong proponent of investing in commodity market told the Economic Forum that he believes the bull market in commodities started six years ago and, judging by past commodities booms, thinks it should run for at least another nine years, probably longer.. That empirical proof should convince a lot more institutional money managers to invest in commodities than ever before, which should keep the bull market running even longer, he believes.

Rogers said that the more bureaucratic red tape that a country imposes, the harder it will be for that country to attract capital, the worse off its citizens are and investors should look for opportunities elsewhere

assets out of the dollar and buying Chinese currency because the Federal Reserve has eroded the value of the U.S. currency. I am in the process of — I hope in the next few months — getting all of my assets out of U.S. dollars, I am that pessimistic about what’s happening in the U.S.’

BY SUDHIR VYAS