Recovery signs clear, says Chidambaram

Saying the economy was showing signs of recovery, Finance Minister P Chidambaram said on Friday that the current account deficit (CAD) this year would be brought down to $60 billion or about 3.1 per cent of gross domestic product (GDP) and the fiscal deficit would be contained at 4.8 per cent of GDP.

“Steps taken in the last few months have beginning to yield results. CAD is under control. I’m confident we will be able to adhere to the red line on fiscal deficit. Core sector growth, a strong monsoon and healthy exports augur well for economic growth,” he told a press conference.

The CAD had touched an all-time high of $88.2 bn or 4.8 per cent of GDP in 2012-13. The government had said it would be contained at $70 bn this year, 3.7 per cent of GDP. A lower CAD has been projected on the back of declining gold imports and an increase in exports.

Core sector industries recorded eight per cent growth in September, the highest in 11 months. The government is expecting a bumper crop this year, due to a good monsoon.

The minister said GDP growth would be over five per cent this year but acknowledged there were many challenges, such as high inflation and low investment. The fiscal and monetary measures taken in recent months would help cool prices and recovery would be seen in investment, too, he said. He urged the corporate sector to start investing, assuring full government support for new proposals.

“Bank credit has grown by 16.8 per cent in April-August. There is a sharp rise in credit demand and if it is maintained, industrial activity would show good progress,” he added.

Chidambaram endorsed the repo rate rise by the Reserve Bank of India earlier this week. He said the stance of the government continued to be pro-growth, but the situation had changed in recent months and there was a need to look at the policy action in the context of not only high inflation but also currency stabilisation.

The US Federal Reserve had mentioned about reduction in its bond-buying programme on May 22, which led to a sell-off in emerging markets. The fear of the Fed’s tapering plan have been allayed as not likely to begin till January and the government is confident the markets won’t be affected much, since investors have already factored this in.

After taking a beating two months earlier, when the rupee was hitting a fresh low every day, the BSE exchange’s benchmark index, the Sensex, hit an all-time high of 21,196 on Friday, on the back of strong buying from foreign investors. The rupee closed on Friday at 61.74 to a dollar, down 24 paise. It had touched an all-time low of 68.85 on August 28.

Chidambaram cautioned investors against “excessive exuberance” about markets.

On the government’s legislative agenda, he said they’d try to get a dozen Bills passed in the coming winter session of Parliament, including those on the securities market and the insurance amendment Bill, which seeks to raise the permitted level of foreign direct investment in the sector to 49 per cent from the present 26 per cent.

“Most parties, including the principal opposition party, have expressed their support for the insurance Bill. I hope with majority support, if not unanimous support, we will be able to pass the Bill,” he said.

On the Direct Taxes Code Bill, he said amendments had been finalised and would be placed before the cabinet for approval. On the retrospective tax issue, he said amendments to the Income Tax Act would be introduced in Parliament only after the Vodafone tax case was resolved.

“We are very clear in mind that what we want to achieve is reconciliation. We want to achieve a settlement that is fair and that will be acceptable to Parliament…I think they (Vodafone) are also clear on what they want to achieve, I think they are not clear of the process by which they want to achieve it,” he said.

Chidambaram said the country’s first all-women bank was likely to be inaugurated on November 19, the birth anniversary of former Prime Minister Indira Gandhi. But due to the model code of conduct in Delhi, the government has sought the Election Commission of India’s approval.

Source: Business Standard

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