The Indian economy is stumbling. Despite the fact that it grew on average of 7.9% growth over the last decade, Indian Rupee has fallen more than 20% since the beginning of this year. Consumer prices are continuously going up and there is also concern about double deficits. Critics point out ‘structural’ issues with the Indian economy, as the country suffers from long-time problems of the regional divide and poverty that afflicts 60% of its population. 

The Indian government is taking action. To tackle the foreign exchange issues, the government invited the world-famous economist Raghuram Rajan as the new governor of the Reserve Bank of India. The newly appointed governor said, “The slowdown of the Indian economy is not a structural but only a temporary issue that is a part of results of the government’s stimulus plan to tackle the global financial crisis in 2008.” 

In addition, series of measures are being taken to settle the concerns of foreign investors. Regulatory framework, which is said to have reduced foreign investment, is being improved. The economy is seeing a glimpse of hope. The Rupee is back on the road to recovery. Experts are saying the new leadership under Rajan will help bring the Indian economy back on track. Of course, there are still doubtful voices, saying that the “Rajan magic” is not going to last long and India will have to take long-term and difficult measures. 

To discuss the status of the Indian economy and get an official perspective, Fortune Korea asked for an interview with the Ambassador of India to the Republic of Korea. To all the issues and doubts raised, the Ambassador’s response was, “All is well,” while also emphasizing that, “Korea and India have complementary economies, and the Indian market provides every opportunity for Korean companies to participate in practically every sector - from shipping to energy.” 

Q: What do you think is the biggest reason for the current slowdown of the Indian economy? 

A: We are currently going through a “temporary” slowdown of the economy, and there are internal and external factors. One of the external factors is, of course, global recession. We are a globalised economy and are affected by the economic situation in other countries, especially the U.S. and Europe. We are affected, like many other countries, by the talk of the tapering off of US quantitative easing. We have witnessed some outflow of short term investments, but this is only temporary. 

There are also internal factors. We have grown fast, but we have been dependent to the extent of 80% on energy imports. Last year, we have spent $ 160 billion on energy imports. We also exported $ 60 billion worth of oil products, so the net outflow was $ 100 billion. 

Also, India is the largest importer of gold in the world. Every year we buy nearly 1,000 ton of gold. Of course it adds to our wealth but is not a productive asset. 

Third, there is an issue of current account deficit. Before, our CAD was more than 5%, and the government seriously recognised the need to bring it down. It was reduced to 4.8% last year, and we hope to trim it further this year. 

Despite all these factors, we have grown on average of 7.9% over the last decade. This year’s projection is around 5.5%, and hopefully we will see a higher growth next year.

Q: The Indian Rupee has fallen significantly, which is affecting performances of the businesses in India.

 A: The Rupee had fallen around 20% during the last three months. Good news is that it went up in the last ten days, by 9.5% to reach a level approximately of 63 to a Dollar. Many currencies of other countries have also dropped, including Indonesia and Thailand. 

However, the fundamentals of the Indian economy remain strong. We have foreign exchange reserves of $ 280 billion, and we also receive the largest amount of remittance from the Indian Diaspora, which stands around $ 70 billion yearly. We received record high amount of FDI in 2011, which was $ 36 billion. Last year it was $ 23 billion. We are still one of the most preferred destinations for foreign investors. 

Regarding concerns over Rupee depreciation of FDI, I can say they are only temporary. We are confident that the Rupee will soon bounce back. Of course, there are also many challenges, as we are still a developing nation. 

Q: Some analysts say that the taxation policy of the government last year has reduced the foreign investment.

 A: Taxes in India are not particularly higher than other countries. The maximum individual income tax is 33% and corporate tax around 20%. We will also soon introduce VAT. 

While there is always scope for improvement and any country or individual can make mistakes, we are determined to overcome the challenges and will continue to work towards strengthening the economic framework. 

Every year we have been receiving $ 20 - 30 billion in FDI, and this has helped our economy. Experts believe that India will become the third largest economy in the world by 2030. 

Q: Many Korean companies who have entered the Indian market are facing difficulties from poor infrastructure and distribution system. 

A: We recognise the difficulties and the government have been making continuous efforts to improve the infrastructure. The government of India, during the current five-year plan, is investing $200 billion in infrastructure development every year, in sectors including power, highways, metro and airports. 

We are also focusing on improving the distribution network. We are building warehouses nationwide. 

In particular, with Japanese assistance, we are building the DMIC (Delhi-Mumbai Industrial Corridor) that entails setting up a series of modern townships with a sizable investment of $ 90 billion. Around one hundred different infrastructure projects are being undertaken over the 1480 kms long DMIC. A dedicated railway freight corridor that connects Delhi and Mumbai is also being constructed. 

In Rajasthan, a first-ever Korean industrial park will be built, in an area of 250 acre. We hope this will serve as an attractive destination for more Korean companies. 

Q: During the economic growth in India, the percentage of the poor has not dropped, and we understand there is still an issue of regional divide.

 A: India is a large country, with vast land and population of 1.2 billion people. The population will continue to grow until 2050. 

When India achieved independence from the British rule in 1947, 90% of the population was living below the poverty line. We have brought down poverty levels to 25%, yet the issue remains a huge challenge for us. 

There is also a regional divide, with western and southern parts of the country being relatively more prosperous. 

Nevertheless, unfortunately, there is no country that does not have the rich and poor issue. The income gap exists everywhere, including Japan and the U.S. It is a reality. Rich and poor gap does and will exist in every country. 

What is important is how you work to improve the gap. The government of India have been making efforts to expand opportunities for the poor. An example of the government efforts is an initiative called MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act). Through the scheme, the government guarantees employment for up to 100 days per year, for one person from every poor family. Nearly $10 billion annually has been earmarked by the government for this scheme. 

I want to stress that India is a country that puts strong emphasis on the right to education. Basic education is being guaranteed by the government, which is currently also providing 140 million free mid-day meals daily to school children in India. 

Today, the Indian parliament approved a food security bill, which will make available food grain to weaker sections of society at highly subsidized prices. This will benefit two-thirds of the total population. 

India is a developing country with per capita GDP of 1,500 dollars, but we are determined to expand the social safety net and making every effort to improve the life of the poor. 

Q: The population of India is large but is still growing. Some say that it can exceed that of China. 

A: The large population is a challenge to us, but we are also one of the youngest countries in the world. According to a statistics, by the year of 2020, the average age of India will be 29, China 37 and Europe 49 years. There is demographic dividend accruing. We are getting younger even though the world is aging – I think this gives India another competitive edge. Large population, as I see it, is a challenge as well as an opportunity for us. 

Q: How do you think the general election next year in India will affect its economy? 

A: That is an easy question. I will say that India is largest democracy in the world and, for the last 65 years of the Indian history, we have continued to grow, regardless of which government has come to power. 

Q: In your view, what will be the areas that we can promote for bilateral economic cooperation? 

A: India and Korea have complimentary economies. Korea is a technological giant, which is strong in areas like consumer durables, electronics as well as infrastructure and shipping. Korean products have become household names in India. 52% of the Indian home appliances market is with Korean names like Samsung and LG. 

Just the electronics market in India, is projected to grow to $400 billion annually by 2020, providing good opportunities for capable Korean companies. The potential for business cooperation is unlimited, from shipping and steel to energy and infrastructure. 

Currently we set up a trade target of $ 40 billion, which we are confident to achieve by the year of 2015. 

Q: We understand that your Energy Minister has just visited Korea to attend the 5th Asian Ministerial Energy Roundtable – How was the visit and what is the result? 

A: The first Asian Ministerial Energy Roundtable was held in 2005 in Delhi. Countries in Asia are among the fastest growing economies in the world and, naturally, the demand for energy is high. The main purpose of the meeting was to enhance cooperation between producers and consumers nations especially to ensure stable energy supplies at reasonable prices.  I understand that the meeting was successful. 

Q: Last but not least, please let us know about the film industry in India. 

A: India is the biggest film producer in the world. We produce around 1,250 films every year. We are delighted that Indian movies are doing well the around the world including the U.S. and Europe. In Korea, the Indian film ‘Three Idiots’ – famous for its line “All is well” – was hugely popular. 

We are hosting film festivals in major cities of Korea to introduce Indian films to the discerning Korean public. We have had film festivals in Busan and Seoul, and we will soon have one in Incheon. You are most welcome to watch Indian films as there have interesting storylines.

By Yoo, Boo Hyuk

Fortune Korea

October Issue, 2013