President Pranab Mukherjee sought to set the record straight about his stewardship of the Finance Ministry post the 2008 global financial crisis by stating that India, and indeed the rest of the world, hadn’t recovered from the negative effects of the global recession despite the G-20’s collective decision to deliver a substantial global fiscal stimulus.
“We all failed to understand the depth of the crisis,” he said adding that the roots of the current growth slide in India and other emerging economies can be traced to the recent crises in the Eurozone and the developed world. He elaborately explained this to Euronews, a local television channel. He even suggested that the recovery in India’s GDP in 2009-10 and 2010-11 was short term in nature as subsequently all emerging economies saw a big dip in growth.
By saying so, the President also subtly signalled that it may be futile to suggest that the unprecedented fiscal expansion undertaken before and after his tenure may have been responsible for the economic slide today. This is the first time that the President spoke about the matter on foreign soil.
In recent weeks he has been at pains to suggest from public forums that it made little sense to see economic trends in blocks of three to four years — indirectly referring to his tenure — and has clearly stated that macro economic trends have to be seen in a block of ten years as they are affected by the phenomenon of leads and lags at the global level.
His response came after Finance Minister P. Chidambaram was seen to have broadly hinted that the fiscal expansion after 2009, though much needed at that time, could have been partly responsible for the negative outlook on India’s growth prospects in recent times.
Mr. Mukherjee also addressed prominent non-resident Indians at an evening reception here on Thursday and spoke about how the larger trend is that India is on a long-term high growth path, despite short term blips in GDP growth rates. To buttress his point he said the first fifty years of the 20th century saw an average GDP growth rate of 1 per cent. The next 30 years (1950 to 1980) saw GDP growth rate of roughly 3.5 per cent. The subsequent twenty years (1980 to 2000) saw a much faster average GDP growth rate of about 6 per cent. The first decade of the 21st century saw growth rates accelerate to over 8 per cent.
The President sought to provide a long view of the economy, probably to buttress his point that long term trends gave a more accurate picture of the real outcome, rather that seeing short to medium term trends to determine the impact of policy decisions. While exhorting NRIs to continue investing in India because of its inherent growth potential, the President also strongly refuted the claim made by Indian industrialists and other experts that there was a flight of capital happening from India.
“It is true that Indian companies have invested more in Belgium than Belgian companies in India in the past year and it is also true that Indians are similarly investing more in United Kingdom. But this is more because Indian entrepreneurs are becoming global players with their sophisticated managements and technologies. This cannot be seen as flight of capital,” Mr. Mukherjee noted. He also defended the fiscal record of the last five years, saying that the overall government debt to GDP ratio actually fell by close to 10 per cent over the past five years and the debt to GDP ratios of the western economies were still rising.