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Home > Business > PTI > Report

EU bullish on India's GDP growth

June 24, 2004 13:59 IST

The European Union on Thursday said India will surpass 7.0 per cent growth this year and the new United Progressive Alliance government is expected to continue with reforms, including reduction in fiscal deficit.

"What India achieved so far is impressive. What has been achieved till 2003, can be improved further," EU Ambassador Francisco da Camara Gomes told the Forum of Financial Writers.

EU perceives the Indian economy, long seen as lagging its East Asian neighbours, to follow China in a sharp breakout by growing at over 7.0 per cent in 2004.

"I am confident this government will continue the economic reforms that were started by then Finance Minister Manmohan Singh in 1991," Gomes said.

Referring to warnings by some institutions, he said, "Budget deficit has to be lowered. It will be a fascinating thing to see what happens in the Budget."

The combined fiscal deficit of the Centre and states mounted to nearly 10 per cent of GDP last fiscal from 7.6 per cent in 1996, which has led to diversion of funds from infrastructure, health, education and social protection to debt repayment.

Asked whether populist policies laid down in the Common Minimum Programme will raise fiscal deficit and hinder growth, he said, "The focus on poverty and rural development is not an obstacle to growth as it will only increase demand in that sector, which in turn will raise industrial demand."

Although the performance of the economy has been impressive, the EU said India needs to push ahead with bold reforms as vast majority of its population still lives on less than $2.0 a day.

Agriculture accounts for nearly a quarter of the GDP and the country's predominantly agrarian population remains at the mercy of monsoon.

High GDP growth seems to have created relatively limited number of jobs, concentrated mainly on the high-skill level professionals.

Progress was needed to ensure greater effectiveness of public services through administrative reforms, Gomes said.

He warned that volatility in fuel prices in international market can put stress on the Indian market.

"Oil prices are a constraint for all of us," he said, referring to the external factors that may come in the way of India attaining high growth.

Noting that high economic growth was crucial for the continued fight against poverty, EU said trade must naturally play an important role.

Gomes said the EU was looking for a gradual phase-out of all "irritants" like non-tariff barriers and procedural hassles to boost trade.

EU favoured a multi-lateral trading system and based on the progress on World Trade Organisation, the union would look into ways of boosting bilateral trade with India.

Referring to high tariffs in India, he said, "We wish at least all taxes are made WTO-compatible."

Gomes said the EU is, at present, one of the most open markets for India as out of the total 10,300 tariff lines, Indian exporters are subject to either zero or reduced tariff on 9,100.

Moreover, EU has made a substantial contribution to promote exports and support economic development through its Generalised System of Preferences, which would offer preferential access to EU markets for developing nations from 2006.

India would soon rank as the number one GSP beneficiary with 6.2 billion euro in referential exports to EU in 2002, including 2.4 billion euro for textiles, garments and 509 million euro in agriculture.

GSP is expected to take due account of India's needs and achievements.

The EU expects India to pursue a number of issues like industrial policy, good governance, competition, trade and investment.

The EU also wants India to take legislative steps in order to apply the Framework Agreement, signed with European Investment Bank, which will pave the way for a meaningful contribution to the financing of investment projects of mutual interest.

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