It gives me great pleasure to welcome you to this first meeting of the Economic Advisory Council.
I hope that in the long run, this Council would be a good sounding board.
for inculcating awareness in Government on the different points of view on key economic issues.

And we meet at a time when the global economic scene is both complex and uncertain.
There is no unique prescription.
Nor a universally accepted consensus on the malaise itself.
Its symptoms are evident in various forms.
Large parts of Asia remain in serious economic difficulties triggered no doubt, by a financial crisis which spilled over into a crisis of Balance of Payments and Exchange Rate with significant contraction of GDP.
And no one with confidence can assert that the worst is over. Japan, which was an important engine of growth is in serious difficulties.
More recently, Russia has been engulfed by crisis.
The "banking bubble" which surfaced some years ago was over-blown by unsuccessful efforts to seek an easy way out of the problem.

Economic growth in industrial countries also shows signs of slowing down.

Global consensus on what needs to be done has eluded all of us.
International economic institutions have yet to fully come to terms with the causes, consequences and prognosis of the deep shadow the economic meltdown has cast on the global economic system.
Where does India stand in all this ?
There are obvious positives.
Recent data from the Department of Statistics which has undertaken an exercise under the Special Data Dissemination Standards has projected that the GDP for the year 1998-99 will grow at 6.3% as against 5.1% in 1997-98.
Perhaps, apart from China no other major country would be achieving this rate of growth with relatively modest inflation, low current account deficit, and a balanced economic growth.

This may give us some comfort but it cannot be an alibi for complacency.

We have to get to the growth path which is needed to address poverty alleviation.
Enable fruits of growth to percolate to the grassroots.
And as I have said earlier :-

• Get GDP growing at 7 – 8% over the next 3 years.
• Industrial growth at 12 – 13% in the medium term.
• Exports at 12 – 15% in dollar terms.
• Ensure high levels of investment both public and private in the agricultural sector while giving a boost to agro-processing industries.
• For achieving all these, clearly, long term policy changes are necessary.

But today, I have to focus on some key concerns :-
FIRST, clearly the short term.
What can we do to reactivate growth impulses in Indian industry?
How to improve confidence levels ?
Allay misgivings and impart buoyancy to investor decision making.
How to kick-start the economy without generating further fiscal pressures and rekindle inflationary forces ?
How to get public and private investment to move in tandem which can excite the urge for growth ?

SECOND, how to further strengthen our financial sector and make it more resilient to shocks ?

This is not unconnected with efforts to avoid what is now described as the "Contagion effect".
The Asian crisis began by severe weaknesses and over-extension of the financial and banking system.
We must take immediate measures for further strengthening the financial sector.
Improve the quality of portfolios, reduce the problem of Non-Performing Assets and ensure that infrastructure receives adequate finance.

THIRD, long term fiscal policies.
I do not think there is a magic number – an ideal figure of fiscal deficit.
I am aware of the intellectual debate on whether in times of distress one can loosen concerns on fiscal deficit to get growth moving.
But looking to India, there is in fact need to rein the fiscal deficit which appears unacceptably high.
This requires concerted action.
To reduce Government expenditure.
Improve the efficacy of public expenditure with a sensible expenditure management policy.
Get greater revenue buoyancy.
Improve the Tax-GDP ratio.

Widen the tax net for direct taxes.
Eliminate exemptions and plug leakages.
And undertake public sector restructuring with a credible disinvestment programme.
A programme for not merely garnering resources for Government.
But to improve the productivity and efficiency of the public enterprises.
Unless fiscal deficit is brought under control, macro management will continue to be difficult.
How does one combine the need to kick-start the economy for getting on a higher growth path and yet rein in fiscal deficit to acceptable levels ?

FOURTH, issues connected with Monetary Policy and Balance of Payment strategy.

Fortunately, our present policies in a world of volatile exchange rates have kept our forex markets relatively orderly.
We have taken timely action in the form of Resurgent India Bonds to strengthen our reserves and are not under short term pressures.
But we all know that there is in the medium term, a financial gap. Measures to bridge this gap is not unconnected with increased flow of direct foreign investment, a pick up in the export momentum and positive FII flows.
In addition to the external dimension, there is the whole issue of availability of credit for industrial activity at a cost which is affordable and consistent with the need to reactivate the growth momentum.

FIFTH, the issue of sequencing and pace of reform measures requires a broad national consensus.
Which are the reform initiatives which should receive priority.
What should be their pace ?
How should they be sequenced ?
Our response to these would need to be India-specific since global benchmarks could be misleading.

SIXTH, and not the least.
Every year when the World Development Report comes out, it serves as a rude reminder of the systemic neglect of the social sector and Human Resource Development reflected in the Quality of Life Index.
This needs a reversal by resetting our goals and according the requisite priority to social sector development in our planning priority.

Finally, let me say that there are many other long term issues connected with Human Resource Development, demographic policy, a sensible labour policy, the restructuring of the planning process.
These should receive our attention in subsequent meetings.

For today’s meeting, I have flagged some issues which are of immediate concern and on which a consensus among you will help Government in articulating policies to effectively address these concerns.

I look forward to hearing your views.