‘Fiscal deficit target is a red line. It will not be breached under any circumstances’
Finance Minister P. Chidambaram, on Wednesday, said that the government would further liberalise the foreign direct investment policy in the coming weeks.
Addressing a press conference here , Mr. Chidambaram also said that some more steps were in the offing to contain the widening current account deficit (CAD). “We expect that we will be able to fully finance the CAD this year too, and we will not be obliged to draw down on reserves. This year, I promise we will tackle both (fiscal and revenue) deficits. The target for fiscal deficit is 4.8 per cent of gross domestic product (GDP). It is a red line, and it will not be breached under any circumstances,” he added.
The other steps being considered by the government to deal with the CAD include relaxing the external commercial borrowing (ECB) norms, attracting investments from sovereign wealth and pension funds, and NRI deposits. Responding to questions on the falling rupee, the Finance Minister said though he did not have any fixed target in mind, he would endeavour to check volatility and end speculative trades in the domestic currency.
He said the government was also looking at raising import duty on non-essential luxury items and promoting exports to contain CAD, which had soared to a high of 4.8 per cent of the GDP last fiscal. “Finance Ministry officials were preparing a list of non-essential goods with a view to limiting their inward shipments. Electronic hardware can be manufactured in states like Rajasthan and Kerala,” he said.
Mr. Chidambaram was confidence that the economy would record a growth rate of 5.5 to 6 per cent in the current fiscal, up from 5 per cent a year ago. “I am confident that we will take the Indian economy one rung higher in 2013-14. We are looking forward to a growth rate between 5.5-6 per cent, and we will take all measures to achieve that goal,” he said.
Underlining the need to revive investor sentiment, he said that the industry must play its part. “Industrial houses appear to be confident when they decide to invest abroad. The same confidence must be exhibited in order to invest in India.
The price of credit is indeed high, but it is not so dauntingly high that it should hold back investment,” he said.
He further said that even without the additional measures, inflows would be well above $80 billion, enough to comfortably finance the CAD.
The government took some strong measures to contain the import of gold. In June, it was down to 31 million tonnes but went up to 45 million tonnes in July. However, gold import in June and July in the current fiscal were less than what was recorded in corresponding months last year. “We hope to contain gold imports at a level well below last year's total imports of 845 million tonnes, and save a considerable amount of foreign exchange which will have a positive impact on CAD,” he added.
Asked if the government had any specific value of rupee in mind, Mr. Chidambaram said: “We do not target any specific value of rupee, but we certainly do not countenance speculative transactions on the rupee, especially in the overseas market. Therefore, in last two weeks, Reserve Bank of India (RBI), in consultation with the government, had taken a number of measures to stabilise the rupee. We need to stabilise the rupee, and, going forward, take steps to promote growth. The rupee depreciation of June-July was unexpected,” he said.