Dismissing IMF's growth projection of 3.75 percent for India as pessimistic, Finance Minister P Chidambaram has said the country's economy is expected to grow by 5 to 5.5 percent in the current financial year on back of good monsoon, robust farm output and impact of reform measures undertaken by the government in past one year.
"We expect these measures to show their impact from the second half of the current fiscal and believe that the Indian economy will grow at over 5 percent and perhaps closer to 5.5 percent in 2013-14," he said, in his address to the Carnegie Endowment for International Peace, an eminent US think-tank.
"I know that the World Economic Outlook report (of the IMF) does not share my optimism, but I may tell you that we do not share their pessimism," Chidambaram said highlighting six key fundamentals of the Indian economy including financial system, skilled workforce and strong corporates that have been contributing to the country's growth momentum.
"Set against the current global economic background, even a growth rate of 5 percent looks good, but is much lower than the ambitious standards that we set for ourselves in 2004," he said.
The Minister said: "Every year, our financial system is getting better and stronger and, through this, we expect to translate our good investment to GDP ratio into a higher GDP growth rate."
Defending the FDI policy amid reservations being raised by retail giants like Walmart, he said they always ask for more but were expected to work within the policy framework.
"We have a policy. Genuine investor must work within that policy. It may not be the ideal policy from his point of view. But this is the policy that we have today. You have to take it as it is," Chidambaram said.
"I am confident that one or two multi-brand retailers will enter India before the financial year is out. I think, one is just at the door step," he said, without naming anyone.
Chidambaram pointed out that the Indian growth trend for the last 21 years was caused by several microeconomic fundamentals.
"Nothing has changed on these. In fact our resolve to strengthen these fundamentals has become stronger. I believe India continues to have great prospects based on these fundamentals," he asserted.
Chidambaram said that growth slowed down in the crisis year, 2008-09, but India took the world by surprise by rebounding quickly from the slower growth of 6.7 percent in that year to record growth rates of 8.6 percent in 2009-10 and 9.3 percent in 2010-11.
However, there was a further downturn in the global economy in 2011 on account of the sovereign debt crisis in Europe and the subsequent slump in the World economy, Chidambaram noted.
"We also witnessed the emergence of domestic constraints on investment and consumption. As a consequence, India's growth rate declined again to 6.2 percent in 2011?12 and further to 5.0 percent in 2012-13," he added.
"The increasing trade deficit and fall in net invisible earnings led to a widening of the current account deficit to USD 88 billion or 4.8 percent of GDP in 2012-13. With a sharp slowdown in manufacturing growth and a moderation in the expansion of services, the growth in the first quarter of 2013-14 further declined to 4.4 percent," he said.
Pointing out that India's experience in this period is not unique, Chidambaram said that virtually all the major emerging economies around the world have seen a sharp decline in growth -- the so-called Great Descent.
Chidambaram said the expectations of improvement in the economic and financial conditions of the US, coupled with the decision of the Fed to postpone the tapering of the quantitative easing, have shaped expectations of a gradual global revival.
"But I am aware that there may be possible 'bumps' on the road ahead. In line with this emerging global outlook, the Indian economy has also showed early indications of recovery with a pick-up in exports in July, August and September - our second quarter," he said.
"Reversal of the negative growth in manufacturing; and a reasonable rise in freight traffic is indicative of economic activity picking up," he said.
Replying to questions on opening of multi-brand retail, the Minister said, "we have a policy. May not be an ideal policy from the point of view of foreign investor. It may not meet all their requirements. But this is the policy that we have been able to make."
Based on the feedback received, he said the government has tried to remove as many glitches as possible.
"We clarified a number of issues. We went back to the Cabinet and asked cabinet to approve them and the Cabinet approved them," he said.
Chidambaram said that India's principal opposition party and the government are on the same page on the need for the passing of the insurance bill.
The main opposition party, he said, promised to pass it in the last session of Parliament, but towards the end of it due to "political compulsion" they said they would get it done in the next session.
"Hopefully we will pass the insurance bill in the winter session," he said.
"I think a lot of things are happening. Will happen. It is our hope that an investor would look at the practical difficulties a policy maker has in India and accept that, rather than wait for an ideal policy. There is no such thing as an ideal policy," Chidambaram said.