India can keep up its scorching economic growth for the next two decades, stoked by strong investment and capital inflows, the finance minister forecast on Sunday.
But at the same time Finance Minister P. Chidambaram told an international conference that Asia's third-largest economy was lagging in achieving financial reforms and would miss some key United Nations development targets.
Also, while India and China and the rest of the developing world are now the main global growth drivers, economic power "still resides with the developed world" that attracts the best brains and controls financial and energy resources, he said.
"The biggest challenge (for maintaining India's growth) is to keep investment growing," Chidambaram told the India Economic Summit organised by the World Economic Forum in New Delhi. "We can keep this (high) growth continuing for the next 10, 15, 20 years" as long as investment remains robust which, he said, was "perfectly achievable."
India's economy has logged average annual 8.6 percent growth for the past four years and the government is targeting "close to nine percent" expansion this year.
India has been attracting huge foreign capital inflows, which have helped to expand its economy, and its investment-to-gross domestic product ratio, a key measure of growth potential, is running at a healthy 35 percent. Chidambaram said he was targeting a rise in the ratio to 40 percent in the next five years.
"Indians are good savers. As long as I keep investment going, there will be more jobs" and that will translate into more savings and investment, he said, calling it a "virtuous circle." His comments followed data late last week showing growth slowed to 8.9 percent in the second quarter, still second only to China's, from 9.3 percent in the first quarter. At the same time, there are global risks over which India has no control, Chidambaram added, saying China needs a more flexible exchange rate and the United States must wrestle down its hefty budget and current account deficits.
Chidamabaram also acknowledged that crucial "financial sector reforms are lagging behind, in banking, insurance, pensions... there is an unfinished agenda." "The financial sector is at the heart of the economy. We have not been able to push forward" with these reforms, he said.
"It's a disappointment," he said, but added the ruling Congress-led coalition had 16 months left before general elections in 2009 to "make some progress" in these areas.
The minority coalition depends for its survival in parliament on its communist allies, who vociferously oppose economic reforms. Chidambaram also admitted India had fallen behind on some of the UN Millennium Development Goals that cover hunger, literacy and poverty reduction.
It might be possible to meet some goals, he said, without naming them. But others might need another three to four years beyond the UN target of 2015.
India's delivery of social security programmes also had not improved despite far higher outlays as "we still rely on tried and largely failed systems of delivery."
India's rigid bureaucracy is a major hurdle in achieving "more inclusive growth" that would encompass India's tens of millions who have not shared the benefits of the economic boom, he sad. Also, while "India and China now contribute 60 percent of the world's economic growth... the key factors that drive economic power are knowledge, financial resources and material resources such as oil and gas.
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