The Hindu : Business : 'Import liberalisation will boost economic growth'

Online edition of India's National Newspaper
Friday, May 06, 2005

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Business

'Import liberalisation will boost economic growth'

K. T. Jagannathan

Initiatives on the export front may not generate much economic development

CHENNAI: If India has to become an important export economy, it should be a large importer.

Stating this in a discussion with this correspondent, Andrew F. Freris, Chief Economist for Asia Pacific, BNP Paribas, asserted that "the GDP (gross domestic product) growth rate in India could go up to 10 to12 per cent and sustain there for long.'' If this had to happen, there should be a rapid liberalisation of imports.

Pointing to the initiatives on the export front, especially in the area of software and related services sector, Mr. Freris said "these are encouraging but may not necessarily generate backward and forward linkages essential to further economic development.''

Imports and exports as a percentage of GDP hovered around 10-15 per cent for India. "It is three times in China and ten times in Singapore,'' he said. In this context, he pointed out how China had been a major importer in this region. "China is able to achieve a significant growth rate by giving up a great deal now (by removing import curbs),'' he said. He did not agree with the suggestion that China was able to do it because of the nature of its political system. In this context, he cited countries like Thailand, the Philippines and Malaysia, which practiced democracy and where decisions were taken quicker.

Mr. Freris said the rupee would appreciate and touch $41 by year-end. India's foreign exchange reserves at over $135 billion would provide the Reserve Bank of India greater flexibility in its forex and interest rate policies. The external perception of India by investors and rating agencies was "encouraging.'' This should help reduce the cost of raising of external funds by Indian corporates.

He said "a lot of exaggerated fears have been raised on the impact of rising oil prices.'' He predicted that the oil price would rule around $45-50 for the rest of the year. "We do expect the G3 economies to slow down in 2005 compared to 2004,'' he said. This would slow down the demand for oil.

He expected the Chinese economy to grow less this year compared to last year. All these, he said, would put a cap on the oil prices. Though oil imports constituted about a quarter of the total imports in India, as a percentage of GDP, oil imports stood at around 4 per cent. The oil price rise would hence have minimal impact on the growth.

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