Expresses confidence that the economy will expand by 5 %

Encouraged by better-than-expected growth in the July-September quarter, Finance Minister P. Chidambaram, on Monday, expressed confidence that the economy would expand by 5 per cent, and the fiscal and current account deficits would remain within limits, notwithstanding the present stress.

“We are going through a period of stress, but there is a ground for optimism... We hope things will become better in the second half of the current fiscal (2013-14). We hope to achieve a growth rate of 5 per cent,” he told reporters.

Mr. Chidambaram based his optimism on several factors such as improvement in the current account deficit (CAD), output of the services sector and recovery of exports.

The Reserve Bank of India data showed on Monday that decline in gold imports and turnaround in exports helped narrow CAD sharply to $5.2 billion, or 1.2 per cent of GDP, in the July-September quarter of the current fiscal.

“We are satisfied with 4.8 per cent growth in Q2 versus 4.4 per cent in Q1 (April-June). We are looking forward to better performance in Q3 and Q4,” Mr. Chidambaram said.

The economic growth had slipped to decade’s low of 5 per cent in 2012-13, and during the first quarter of the current fiscal, it was 4.4 per cent.

Several global institutions, including the World Bank, the International Monetary Fund (IMF) and the Asian Development Bank (ADB), as well as independent experts have projected growth rate of below 5 per cent for 2013-14.

Mr. Chidambaram said that with the recent improvement in some important sectors such as manufacturing, better performance of exports as well as certain steps taken by the government, the economy could be expected to show further improvement.

He also expressed confidence that government would be able to achieve the disinvestment target of Rs.40,000 crore and contain the fiscal deficit within 4.8 per cent of the GDP. “The fiscal deficit at the end of any month does not give a true picture as expenditure is front-loaded and revenues are usually back-loaded. We will contain fiscal deficit at 4.8 per cent,” he said.

In the first seven months (April-October) of 2013-14, the fiscal deficit, which is the difference between earning and spending of the government, was already at 84.4 per cent of the full-year Budget Estimate (BE).

Mr. Chidambaram said: “We are still on target. We are on course for disinvestment. We are still on track to achieve Rs.40,000 crore target.”

He said Plan expenditure at the end of October was 48.3 per cent of BE, compared to last year’s 43.2 per cent. Net tax and non-tax revenues up to October were 43.2 per cent of BE, exactly the same as last year, he added.

“There is some momentum in the beginning of the second half. We will push for tax collections to speed up, and once revenue collections speed up, we are confident that we will contain the fiscal deficit,” Mr. Chidambaram said.

The government will garner little more from the sale of spectrum than the Budget target of Rs.40,000 crore, he added.

On cut in Plan expenditure, Mr. Chidambaram said: “We don’t cut Plan expenditure. Ministries, departments are usually over-budgeted at the beginning of year, and in every year by the time we enter the month of December, we know that they cannot spend the entire budgeted amount.”

Replying to queries on inflation, Mr. Chidambaram said the principal responsibility of taming food inflation and all instruments for that lies with State governments.

“For years, State governments have simply shrugged their responsibility and blamed the Central Government... They (State governments) must take action against hoarding and profiteering. They must take action on removing the barriers to trade... They must encourage people to improve supply change to bring produce to shelves,” he said.

The retail inflation swelled to 10.09 per cent in October, mainly on account of high food prices

Our special correspondent report:

CAD narrows to 1.2% of GDP

The Current Account Deficit (CAD) of the country has narrowed down sharply to $5.2 billion, or 1.2 per cent of the Gross Domestic Product (GDP), for the second quarter — July to September — in the current financial year.

This was much lower than 5 per cent of the GDP ($21 billion) recorded in the corresponding period of the last financial year and 4.9 per cent of the GDP in the first quarter of the current fiscal.

“The lower CAD was primarily on account of a decline in the trade deficit as merchandise exports picked up and imports moderated, particularly gold imports,” said the Reserve Bank of India on Monday.

On a Balance of Payments (BoP) basis, merchandise exports increased by 11.9 per cent to $81.2 billion in the second quarter of 2013-14 “on the back of significant growth, especially in the exports of textile and textile products, leather and leather products and chemicals,” the RBI added.

On the other hand, merchandise imports, at $114.5 billion, recorded a decline of 4.8 per cent in the second quarter of the current financial year as compared to a decline of 3 per cent in the second quarter of 2012-13. This was “primarily led by a steep decline in gold imports, which amounted to $3.9 billion, as compared to $16.4 billion in the first quarter of 2013-14 and $11.1 billion in the second quarter of 2012-13.”

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