Deputy Prime Minister Tan Sri Muhyiddin Yassin has positioned Malaysia as a strategic investment destination for Indian investors, saying, the six per cent annual growth offered potential business prospects.Speaking to a galaxy of Indian investors in Mumbai,India's financial capital today, Muhyiddin sought to entice more Indian companies to set up operations in Malaysia.
"I urge you to explore collaborative possibilities with Malaysia to seize the opportunities," he told a roundtable meeting with Indian corporate leaders.
An increasing number of Indian companies are eyeing Malaysia as a potential investment market.
Nearly 136 companies, both manufacturing and non-manufacturing, have established operations with investments totalling of US$1 billion (RM3.1 billion).
In 2010, India emerged as the 18th largest source of foreign investments totalling US$16 million (RM48 million), from 12 projects
"We are very enthusiastic about the escalation in interest from Indian companies on investment opportunities in Malaysia.
"We have many Indian companies that have indicated their interest in exploring investment opportunities in areas like pharmaceuticals, biotechnology, healthcare and education," he said.
He also urged Indian investors to explore Islamic finance, halal products, and health tourism - some of the areas where Malaysia has a strong foundation.
Muhyiddin is leading a high-level delegation to India, where his stopover includes Mumbai, Delhi and Chennai.
Earlier Wednesday, he visited the Malaysian Visa Facilitation Services (VFS) Centre,where Indian travellers and travel agencies can submit their visa applications, instead of visiting the Malaysian High Commission.
Muhyiddin,who is also the chairman of the Cabinet Committee for Tourism, assured Indian travellers that Malaysia was taking all measures to ease their visit to the country.
Just last year, close to 700,000 Indian visitors, landed on Malaysian shores.
"The Malaysian government strives to continue attracting more Indian tourists by giving importance to the provision of maximum access, in particular, access to visa applications," he said.
Economists are no better than book-keepers. They often dress up figures to create an illusion of growth. This year's economic growth figures In India have been very cleverly fudged to create a mirage.
It happened earlier in 2003-04. After a bad drought year of 2002, economists wrongly computed normal foodgrain production in 2003 as growth, in return jacking up the economic growth figures. Excited, the ruling NDA Coalition went to elections in 2004 riding the mirage of 'shining India'. The rest is history.
Once again, Economic Survey 2011 talks of robust growth and steady fiscal consolidation as the hallmark of the Indian economy. After all, with a growth of 5.4 per cent for agriculture and the allied sector on the back of the increase in foodgrain production this year, country's GDP has been worked out at 8.6 per cent.
I see jubilation all around. Business CEOs, bank heads and the policy makers are all excited. If you have seen the budget discussion -- both prior and after the budget was presented on Feb 28 -- you would have noticed that none of the economists have questioned the veracity of the claim. That is what worries me.
Now let us look at what has been claimed. The GDP in 2010-11 has been estimated at 8.6 per cent. Given the buoyancy in agriculture, and hoping that the monsoon would be normal this year, the government estimates that GDP in 2011-12 would grow at 9 per cent. And as many economic writers have explained the impressive economic growth is because of a resounding performance of the farm sector.
This brings me to the question whether agriculture has really grown? Since the 8.6 per cent growth the country has achieved in 2010-11 hinges on the robust performance of agriculture or as some analyst say on the manner in which agriculture has rebound, it is important to find out how true are the claims?
Agriculture growth in 2010-11 has been estimated at 5.4 per cent. This is primarily because foodgrain production for the current year is anticipated at 232.07 million tonnes. A year earlier, in 2009-10, agriculture production had fallen to 218.11 million tonnes on account of a widespread drought in 2009, a drop of 16 million tonnes from the previous year's record harvest of 233.88 million tonnes. In other words, it is the 'quantum jump' in foodgrain production, from 218.11 million tonnes in 2009-10 to 232.07 million tonnes in 2010-11, that has driven the farm growth.
Of course we know that foodgrain production is not the only criteria when we work out farm growth but it remains the predominant factor. But is India justified in computing the increase in foodgrain production in 2010-11 as the reason for 5.4 per cent growth in agriculture?
Let us look at some of the production figures. In the 2009-10 crop year, farm sector growth was only 0.4 per cent due to severe drought in 2009, which hit almost half the country, reducing foodgrain production by 16 million tonnes, says the Economic Survey 2010. In 2010-11, rainfall was normal, and so the country harvested 232.07 million tonnes.
Interestingly, while the nation rejoices at the recovery in foodgrain production this year, the fact remains that the anticipated food production for 2010-11 at 232.07 million tonnes actually is lower than what was achieved in 2008-09 by roughly 2 million tonnes. Foodgrain production in 2008-09 was 233.88 million tonnes, and in 2010-11 it is 232.07 million tonnes. The country has therefore not even achieved the production recorded two years earlier, and yet we are mistaking it for growth.
I don't understand how can the fluctuation in foodgrain production resulting from weather aberration be construed as growth? More importantly, why are the distinguished economists, and there are a dime a dozen of them, point out this serious flaw in the estimates of farm growth?
Now, consider this. Assume that the 2009 drought had not happened. With the monsoon behaving normally, foodgrain production would have hovered around 232 to 234 million tonnes. If the foodgrain production had remained around twhat was achieved in 2008-09, this year's foodgrain production would not have shown a quantum jump of 14 million tonnes. Under the best of conditions, India could have claimed an increase in foodgrain production by say 2-3 million tonnes.
If the foodgrain production last year had remained at 230 million tonnes or more, the agriculture growth this year would not have been 5.4 per cent but somewhere in the range of 0.5 to 1 per cent. If the farm growth rate had remained at 1 or a maximum of even 2 per cent, the country's GDP would have been around 6 per cent.
The GDP estimates for 2010-11 therefore are fake.
As I said earlier, mere fluctuations in foodgrain production is not growth. In agriculture, it is wrong to compute growth based on annual production figures (now it is being done on a quarterly basis). Growth in foodgrain productions has to be estimated on a long-term basis, in any case not for a period less than an average of 5 years, to know whether there has truly been any growth or not.Until very recently, many economists and research houses seem to have reached a consensus on the above question, that is when Bank Negara’s monetary policy committee meets this Friday another round of interest rate hikes is inevitable.
The basis for such a consensus is that the domestic financial system has been flooded with hot money of late. Many believe such huge inflows of hot money have been poured into the market to speculate on currency and property. The concerns over inflationary risks are also real and valid as inflation rose to 2.2 per cent in December 2010, the highest rate for last year, and expectations are that it will increase further in 2011.
In fact, inflation has become a new economic headache for governments around the world, particularly in the fast-growing countries of Asia. And as conventional wisdom dictates, in response, most countries have resorted to raising interest rates with the hope of containing escalating prices and preventing them from spiralling out of control.
For example, countries such as Singapore, Hong Kong and China have been aggressively “fighting inflation” as their economies continue to expand. Numerous tough measures, including raising interest rates, have been imposed, especially to rein in unhealthy, ballooning real estate bubbles.Confronted with a similar problem, Malaysia is widely expected to jump on the bandwagon of rate hikes soon. This belief, however, has changed somewhat lately.Recent unrest in the Middle East and North Africa is putting pressure on oil and as the price of black gold continues to inch towards the US$150 (RM455) a barrel mark, so does inflation. If the global scenario of rising oil prices persists, coupled with food inflation, this will soon push inflation beyond the comfort level of most governments.No doubt, we have no choice but to roll up our sleeves to fight this global menace called inflation. And raising interest rates is definitely is one of the common tools to contain inflationary risks. But the key question now is how effective an interest rate hike would be, given the current circumstances. One should also bear in mind any tweaking of interest rates now would also affect ongoing policy changes that the government might be considering or is already putting into action.
The first fundamental question to ask is: Is the present inflation that we are confronted with a cost-pushed inflation or a demand-pull inflation? The answer to this question has significant implications for if we are faced with a cost-push inflation, hiking interest rates may not be effective in containing inflationary risks as the major driver for the price hike is production costs. Raising rates is more effective when it’s a demand-pull inflation, as it has the effect of putting up the cost of borrowing and thus curbing excessive demand that pushes up prices in the first place.In simple layman words, cost-push arises when businesses increase prices to maintain or protect profit margins after experiencing a rise in their cost of production. Demand-pull inflation occurs when total demand for goods and services by consumers exceeds total supply by producers or service providers.Worse still, compared to 7.2 per cent last year, our economic growth is expected to normalise at between five and six per cent this year. It is common knowledge that consumer spending played an instrumental role in driving growth last year. Against the background of a volatile and uncertain external economic environment, domestic demand is expected to reprise its role in driving the economy. Obviously, any premature hiking of interest rates across the board at this juncture would increase the cost of borrowing, both for businesses and consumers, and needless to say would be counter-productive in shoring up domestic demand to ensure the country’s economic growth target is on track this year.This brings us to another important point. Any decision to tweak rates in the financial system can have unintended consequences for it impacts almost everyone, ranging from scrupulous speculators to genuine investors, ordinary wage earners to big corporations. Hence, if the timing of interest rate hikes is miscalculated, not only will it curb excessive property speculation, the survival of the already liquidity-starved local small and medium enterprises will be jeopardised as well.More importantly, amid much talk of impending Sarawak state elections and general elections, any sensible government would ignore the impact of interest rate hikes on the people, the lower income group in particular, at its own risk. Already hard-pressed with cost-pushed inflation, low-wage employees would suffer the most as higher interest rates would have a devastating impact on their already meagre disposal incomes.to recap, at the last monetary policy meeting in January, Bank Negara maintained the Overnight Policy Rate (OPR) at 2.75 per cent as it considered the existing monetary policy stance appropriate and consistent with the current assessment of economic growth and inflation prospects, having correctly diagnosed that “inflation will continue to be driven by supply factors with limited evidence of excess demand exerting pressure on prices.”However, Bank Negara did say that it would consider other policy tools, apart from tweaking the OPR, such as the Statutory Reserve Requirement (SRR) and macro-prudential lending measures to ensure domestic macroeconomic and financial stability. This goes to confirm that there are indeed many other more effective tools at Bank Negara’s disposal in the fight against inflation.Regardless of the eventual decision of Bank Negara’s monetary policy committee this Friday, the fact remains that inflation is rearing its ugly head and rising price pressure will test the government’s fine-tuning skills to the fullest, both economically and politically, especially with general elections looming in the coming months.
*Khaw Veon Szu, a former executive director of a local think tank, is a practising lawyer.
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