AIIB meet: Fiscal situation in India is firmly under control, says PM Modi

Prime Minister Narendra Modi on Tuesday said the fiscal situation in India is firmly under control and the government is committed to fiscal consolidation. India’s external sector is robust with foreign exchange reserves in excess of over $400 billion, providing stability and confidence to invest in the country, Modi said during the opening ceremony of the third annual meeting of Asia Infrastructure Investment Bank (AIIB) in Mumbai.
 
The Government aims to reach the fiscal deficit target of 3.3 per cent of GDP in BE 2018-19. The Medium term Fiscal policy statement projects a fiscal deficit at 3.1 per cent of Gross Domestic Product (GDP) for 2019-20 (FY20) and 3.0 per cent of GDP in FY 201-21 (FY21).
 
Modi said the macro-economic fundamentals are strong with stable prices, a robust external sector and a fiscal situation firmly in control. Despite rising oil prices, inflation is within the mandated range. Retail inflation, measured by Consumer Price Index, has remained above four per cent since November 2017.

 
The government has mandated the Monetary Policy Committee (MPC) under the Reserve Bank of India (RBI) to restrict the retail inflation at four percent (with a margin of +/- two per cent), while supporting growth. In its monetary policy review in June, MPC hiked the key policy rate (repo rate) by 25 basis points to 6.25 per cent to contain inflationary expectations. The RBI had refrained from revising the repo rate since August 2017.
 
The Prime Minister said the Government is firmly committed to the path of fiscal consolidation and government debt as percentage of GDP is consistently declining. India has achieved a rating upgrade after a long wait.

 
India has emerged as a bright spot in the global economy which is driving global growth as well. With a size of $2.8 trillion, it is the seventh largest in the world. It is the third largest in terms of purchasing power parity. “In the fourth quarter of 2017-18, the Indian Economy grew at 7.7 per cent. In 2018, we are projected to grow at 7.4 per cent,” he said.
 
The external sector remains robust. Global confidence in India’s economy is rising. Total FDI flows have increased steadily – more than $222 billion have been received in the last four years.
 
Referring to AIIB’s performance, Modi said AIIB started its financing operations in January 2016. In less than three years, it has in its fold, 87 members. And a committed capital stock of $100 bn. It is poised to play a critical role in Asia.
 
In a short period, AIIB has approved 25 projects in a dozen countries with a total financing of over $four bn. This is a good start. “With huge need for infrastructure in member countries, I take this opportunity to call upon AIIB to expand from financing $four bn, to $40 bn by 2020 and $100 bn by 2025,” he said adding this would require simpler processing, and faster approval. It would also need high quality projects and robust project proposals.
 

Asia still faces wide ranging disparities in access to education, healthcare, financial services and formal employment opportunities. Regional multi-lateralism through institutions such as AIIB can play a central role in helping to raise resources.
 
Sectors such as energy and power, transportation, telecom, rural infrastructure, agriculture development, water supply and sanitation, environment protection, urban development, and logistics require long term funds. The interest rates on these funds need to be affordable and sustainable.
Pointing to robust profile of Indian economy, Modi said India is one of the most investor-friendly economies in the world.
 
Investors look for growth and macro-economic stability. They want political stability and a supportive regulatory framework to ensure protection of their investment.

From the point of larger scale of operations and higher value addition, an investor is also attracted by a large domestic market size, availability of skilled labour and good physical infrastructure. On each of these parameters, India is well placed and has performed very well.
 
Total Foreign Direct Investment (FDI) flows have increased steadily – more than $222 bn have been received in the last four years. As per UNCTAD’s World Investment Report, India continues to be one of the top FDI destinations in the world, he said.