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Message from the Chairman:
Fiscal 2013 has been a challenging year for the Indian economy. Growth has slowed to levels lower than we have seen in a long time. The current account deficit has increased substantially, which along with other factors has put pressure on the currency. Credit and deposit growth have moderated, and interest rates remain high, albeit lower than a year ago. While policy measures by the Government during the second half of the year, most notably the reining in of the fiscal deficit, have begun to address the economic challenges, there continues to be widespread pessimism about India's future economic prospects and our ability to get back to 8% GDP growth. In my view, we do have the ability to get back on a high growth path, if we understand the causes of the current slowdown and address them appropriately.
Economic growth has been impacted by a slowdown in investment activity. This is largely attributable to delays in execution and cash flow generation in existing projects under implementation, primarily arising out of issues around access to land and natural resources, and administrative and environmental clearances. The hectic pace of investment activity in earlier years has led to concerns that interests of local stakeholders and environmental issues have not been given due attention. There is indeed a need to have a robust policy framework that balances the priorities of investment with other considerations. What is important is for us to put this in place quickly and maintain its stability so that the rules of doing business are clear and are consistently followed.
Consumption demand and consumer–related sectors have also been impacted by inflation and high interest rates. The moderation in core inflation and the progress on fiscal consolidation have given the monetary authorities the space to reduce interest rates, and this process has commenced. Going forward, one would hope for a continued reduction in interest rates to help create conditions for growth.
Both the manufacturing and domestic services sectors will benefit from the above sets of measures, given the close inter–linkages across various parts of the economy. The rural economy has already made significant gains in terms of diversification of activity and increase in incomes, and continues to have the potential for robust growth. The export–oriented knowledge–based services sector will need to continue to evolve to meet the changing needs of the global consumers of their services, focusing on value addition and building capabilities in emerging areas of information technology. This sector has demonstrated its ability to capitalise on new opportunities in the past, and I believe will continue to do so.
Further, a number of long–term measures are under consideration or implementation that will boost the efficiency and productivity of the economy. These include the rollout of Aadhaar, the introduction of direct benefit transfers to beneficiaries' bank accounts and the introduction of goods & services tax.
In summary, the Indian economy continues to have the potential for sustained high growth. There has been positive movement in some areas, with the fiscal deficit being contained and inflation moderating, though the current account deficit continues to be high. Creating the right policy framework for capital formation and further easing of interest rates would be the immediate priorities, even as long–term policy initiatives are taken to enhance economic efficiency. With these enablers in place, the natural entrepreneurial mindset and aspirational energy of the country will move us quickly back to a high growth path.
Even as we in India focus on addressing the domestic issues at hand, we must not lose sight of the transformational changes taking place globally and the opportunities they create for us. These changes are being driven by technology, which has already in just the last decade changed the way we live and work. The increasing computing power and dropping costs of mobile devices, and expanding access to affordable bandwidth, means that an ever–growing number of people have in their hands a device with great functionality that they can use to access and share information as well as transact business. And this is not a one–way street – each person is becoming an information node that feeds into a global data pool. Increasingly sophisticated techniques are being developed to mine this data pool for a diverse range of applications – designing products & services, increasing sales, improving the quality of education, preventing disease, protecting the environment, enhancing economic empowerment, solving unanswered scientific questions – the list is long. India already has the fifth largest smartphone user base globally, mobile internet access has overtaken desktop access in terms of share of traffic and the number of mobile internet users is almost doubling every year. These trends, coupled with dropping costs and the rollout of Aadhaar, offer the opportunity for new paradigms in business, education, healthcare and other areas.
The ICICI Group under its able executive management team is focused on strengthening its franchise, capitalising on new opportunities and investing in growth while exercising prudence where required in the context of challenges in the environment. I believe this strategic approach will drive continued strong performance in the years ahead.
With best wishes
K. V. KAMATH