Speech

Presidential Address by Mr Saroj Kumar Poddar, President, ICC India

March 11 2008- New Delhi

• Mr. Kamal Nath, Hon'ble Minister for Commerce and Industry, Government of India;
• Mr. Marcus Wallenberg, Chairman, International Chamber of Commerce & Chairman of SAAB and Skandinaviska Enskilda Banken (SEB);
• Mr. Hari Shankar Singhania, Former President, International Chamber of Commerce
• Mr. R V Kanoria, President Elect, ICC India;
• Dr Amit Mitra, Secretary General, ICC India;
• Members of the Executive Committee;
• Members of the Diplomatic Core;
• Ladies and Gentlemen:

It gives me great pleasure in welcoming you all to the Seventy Seventh Annual General Meeting of ICC India, Indian affiliate of the Paris based International Chamber of Commerce - the world business organization.

We are grateful to Mr. Kamal Nath, Hon'ble Minister for Commerce and Industry, for sparing time to be with us today and share his perception on the theme of the Annual General Meeting.

We also have the privilege of having with us Mr. Marcus Wallenberg, Chairman, International Chamber of Commerce & Chairman of SAAB and Skandinaviska Enskilda Banken (SEB) who readily acceded to our request to visit India and join us at this Annual General Meeting.

Set up in 1929, ICC India is one of the most active Chapters of the ICC and has been contributing significantly to espousing the cause of developing countries in the global policy making work of ICC.

On the practical side of the business, ICC India has been at the forefront in guiding bankers, corporates and lawyers on rules governing international trade facilitation including documentary credits, arbitration, commercial practices, preventing trade frauds and the like.

ICC, ladies and gentlemen, was founded in 1919 with an overriding aim to serve the world business by promoting trade and investment, open markets for goods and services, and free flow of capital. It was granted the highest level of consultative status with the United Nations and its specialized agencies, a year after the creation of the United Nations. Ever since, it has ensured that international business receives due weightage within the United Nations system and at meetings of intergovernmental bodies such as WTO where decisions affecting the conduct of business are made. It is probably the only business organization, which presents the world business view to the leaders of G-8 every year at their annual meeting.

Friends, let me now come to the theme of this year's AGM - 'Global Economic Outlook - Impact on Asia'.

The period 2003 to 2007 can be described as the golden period for the global economy with growth averaging 4.8% per annum. However, during 2007, there have been certain very important developments, which have vitiated the global economic environment, so much so, that today we are on the verge of a downturn. The three critical developments that have caught the eye of policy makers, central bankers, economists and financial market participants the world over are - (1) the sub-prime crisis in the US market (2) the rising price of oil and (3) the rising price of agricultural commodities. Let me touch on each of them in brief.

Taking the sub-prime crisis in US first, you all know that the collapse of the US housing market has caused tremors across the globe. The crisis has led to unending speculation about the US economy and its performance in 2008 and in subsequent years. Reports indicate that during the year 2007, total housing foreclosure filings touched a high of 2.2 million, almost 75% more than the previous year.

As of February 2008, major banks and other financial institutions had already reported losses to the tune of US$ 140 billion. There is a 'crisis of confidence' that has gripped the US financial markets and although the actual depth of the crisis and its impact on the economy is still not known, there is near agreement amongst economists that in 2008, the US economy would witness a slowdown.

The next worrying factor is the rising price of oil. The demand supply mismatch in the oil market has caused a severe pressure on the global crude oil prices, which recently crossed the US$ 100 psychological barrier. Both demand and supply side factors are at play and are contributing to the oil prices upward drive.

You will agree that this trend in oil price movement is particularly worrisome for those countries that are heavily dependent on imports for meeting their oil requirements.

Coming to prices of agricultural commodities, the global food prices have also witnessed a rising trend over the past few years. The Food Price Index computed by FAO showed an increase of 23% in the year 2007 over its value in 2006 and an increase of 34% over 2005. In September 2007, price of wheat rose to US$ 400 per tonne, almost 80% higher than the previous year's price. A similar trend has been visible in case of maize prices as well.

The stress that the global economy is today facing on account of the aforementioned three factors has led to a downward revision in the growth forecast for 2008. According to the IMF, global economy is likely to slowdown from 4.9% in 2007 to 4.1% in 2008.

As I mentioned earlier, the sub prime crisis has created havoc in the global financial markets. While this may be the case, the pertinent question, which remains by and large unanswered, is the likeliness of US undergoing a recession and the relative intensity of the recession if it occurs. This question is important because a prolonged slump in the US economy would certainly have repercussions the world over.

Although, Warren Buffet, the legendary investor, has gone on record and said that the US economy is already in recession, the various economic indicators coming out of the US still present a mixed picture. There is a slowdown in growth, but is it a recession, the jury is still out on that. Having said that, I would add that there is a silver lining that we see with regard to the US economy and its performance in 2008. The depreciation of the US$, the easy monetary stance taken by the Fed and the expansionary fiscal policy, through tax concessions to households and businesses, adopted by the government are expected to give a fillip to the US economy. The results of course would become evident only during the second half of the current year.

May I now turn to another important player in the world economy i.e. the European Union. Europe was amongst the first region to experience the impact of the turbulence arising in the US financial market. However, timely action by the authorities and the supply of adequate liquidity by Europe's central bank have enabled the continent to weather the storm for the time being. Although the present situation in EU can be described as one 'under control', real GDP growth rate is expected to decline from 2.6% in 2007 to 1.6% in 2008.
So what are the implications of a slowing EU and US economies on the Asian region? This is the question that is currently uppermost in our minds today.

Ladies and gentlemen, the global focus is progressively shifting towards Asia, now emerging as the engine of economic growth. IMF's latest projections for Asia indicate a real GDP growth of 8% in the year 2007 and a moderately lower 7.2% growth in 2008. China and India are expected to continue their exceptional performance as the fastest growing countries in the region, with China expected to grow at 10% in 2008 and India clocking a growth of 8.4%.

The fact that the Asian economies have shown great resilience amidst the turmoil being witnessed in the global economy has led several commentators to report that Asia has 'decoupled' from the west.

I, however, have a different view. Things are not as simple as they seem. The winds of globalization have engulfed the entire Asian region and over time we see that integration between the financial and the real economies of the west. and of the east has only increased. As a result, turbulence in any part of the world is likely to have an impact in other parts as well.

I would like to emphasize that while the intra-region trade within Asia has gone up substantially leading to the proponents of the 'decoupling theory' to believe that slowdown in US and Europe will not affect Asia, a deeper analysis would show that such trade today largely comprises intermediate goods. The final destination of exports from the Asian region still remains the developed markets of the west. Thus, the Asian region certainly remains vulnerable to shocks arising in the western economies through the real linkages.

Further, with the changing financial architecture in the Asian region, with inflows into Asia rising from the rest of the world, our financial integration is only going to increase. Therefore, we would see some impact on our economies following adverse developments in the West through the channel of financial markets as well. The downward movement in the Asian stock markets in January this year and again over the last few days, in tandem with markets elsewhere, corroborates this trend.

Friends, the global economic environment today is certainly hazy. And I strongly feel that we need to remain vigilant and take corrective measures continuously to lessen the negative impact of a global slowdown to the maximum extent possible.

Friends, these were some of my thoughts that I wanted to share with you all. We have two very eminent people with us here today - Mr. Kamal Nath and Mr. Marcus Wallenberg. Mr. Kamal Nath has been the guiding light for Indian businesses. Whenever we have sought his guidance on economic policy matters, we have received his full support and cooperation. We are indeed grateful to you, Sir, for taking time out of your busy schedule and gracing this occasion.

Mr. Nath has been one of India's premier thought leaders and has recently written a book titled 'India's Century' that captures the transformation the country has gone through. He has very vividly captured the rise of India amongst the comity of nations and I quote "India has put itself on the radar screen of every investing entity in the world. The world recognizes that it would be impossible to do business without India…..its assets - both tangible and intangible - are going to play a crucial role in the way the world develops in the years to come." Unquote.

With these words, I now request Mr. Marcus Wallenberg, Chairman, ICC and Chairman of SAAB and SEB, to share his perspective on the emerging global economic scenario.

Thank you.