Asserting that India can absorb $50 billion foreign investment annually, Union Finance Minister P Chidambaram has said the downturn in Indian economy was temporary and growth will return to 8 per cent in two years.
Acknowledging the largeness of the current account deficit (CAD) at around 5 per cent of GDP in 2012-13, he said the government had no timelines or targets in mind for bringing it down. He expressed hope that softening of oil prices will help bring down CAD.
Addressing the international media in New York, Mr. Chidambaram said the government was reviewing sectoral FDI caps as many of them were imposed at different points of time.
Growth rate of 8 p.c.
“India is poised for a potential growth rate of 8 per cent and the country has not fixed the limit to foreign investments,” he said.
“We as a country can easily absorb $50 billion investments a year or more. In the hierarchy of foreign inflows FDI ranks first followed by FII and external commercial borrowings. FDI is important to India too as in any other country,” he said.
Mr. Chidambaram, who met investors in Canada and U.S. this week, said Indian downturn was a temporary phenomenon. “I agree that it’s a legitimate question but we have an answer. Between 2004 and 2012 we had a growth rate of 8 per cent for six years and four years witnessed a growth rate of 9 per cent.
“We will be back to 6 per cent in the current year. The fact that the growth in 2012-13 declined it’s not permanent and all the estimates show good upturn,” he said.
No targets for bringing down CAD
The Finance Minister said no targets were fixed for bringing down the CAD and hoped that 2012-13 fiscal year to be around 5 per cent of gross domestic product (GDP).
“I know the largeness of the size of CAD and we need to travel some distance before we are able to bring it to 2.5 per cent but that can happen in one year or two. CAD has no fixed numbers. Prudence tells us that CAD must be 2.5 per cent or so. There is no target date,” he said.
Mr. Chidambaram said there was no agreed number on CAD and was aware that the third quarter of 2012-13 CAD was large.
The fourth quarter, he said, is likely to be better and for the overall year, “probably around 5 per cent, maybe a shade below five percent.”
CAD depends on the cost of imports and also rise in exports and if oil prices soften there will be good news.
Larger exports and cost of imports play a huge role, he said.
On gold prices
On gold prices in India and globally, the Finance Minister said they are indeed falling but was apprehensive that people may import more gold.
“We have a passion for gold and we have to live with it. Prices may fall but volumes may rise and we can’t make any predictions on this,” he said.
Mr. Chidambaram put GDP estimates for 2013-14 between 6.1 per cent and 6.7 per cent. “No economist can make an estimate three or four years down the lane. Beyond that, it is only an aspiration. In fiscal 2014-15, India wants to go above 7 per cent. Fiscal 2015-16, we want to go back to our potential growth rate, which is above 8 per cent,” he said.
On his road shows, he said he was not looking at any number nor was he signing any deals.
“I am here to talk to investors who are showing positive response. I am here to make sure that they continue to remain invested in India and to increase their allocation to India,” he said answering a wide-range of questions on India from the Indian and American media.
On the decline in investments in India in the last few years, Mr. Chidambaram said they were because of their own issues and domestic problems.
“They (investors) have become more cautious and need money for their own resources. Their economies require more funds and added to the downturn in India, naturally,” he said.
On rating by agencies
On ratings given by agencies, he said India has made out a case for ratings upgrade. “Some (agencies) upgraded from negative to stable and there will be an upgrade for sure. In course of time there will be an upgrade,” he said.
“We were never in any danger (of a rating downgrade) and we feel the negative outlook is perhaps not justified at all. I believe that they downgraded China from AA plus to A plus. If they are looking at candidates for downgrading, I can suggest a few,” he said.
On corruption issues
Answering questions on the concern expressed in some sections on growing corruption cases and infrastructure lacuna in India, Mr. Chidambaram said “of course there is corruption.
“Corruption was raised as one of the issues in meetings with investors but they did not dominate the discussions. In the last two days if two questions were asked on corruption, 20 were on infrastructure development,” he said.
Finance Minister said India needed $1 trillion in infrastructure projects alone in the next five years, of which 47 per cent will come from private sector and remaining from government and public sector enterprises.
Stating that there was a need to review FDI sectoral caps, Mr. Chidambaram said, “There were many caps imposed at different points in time. We have set up a committee to go into the nature of each cap and ask a question: Has the cap served a purpose? Does it continue to serve a purpose? If it does, let the cap continue. If it does not, then the cap should either be relaxed or removed.”
Mr. Chidambaram said the committee reviewing FDI caps has had one meeting and another was scheduled for end of this month before the last meeting in May.
“Let the report come and I feel many caps are deserved to be either relaxed or removed,” he said.
Pending insurance pension bill
On the pending insurance pension bill, he said the bill was already in Parliament and he had a round of discussions before embarking on the current tour with Leaders of Opposition the Parliament Sushma Swaraj and Arun Jaitley.
They promised to revert after having internal consultations within their party, he said.
There is a strong case for increasing the FDI cap from 26 per cent to 49 per cent in the insurance sector and also there are also contra opinions.
“The ceiling has got to be at 49 per cent some day. Whichever government in office should be persuaded to increase and why not now is the question,” he asked.
On the issue of raising FDI caps in defence sector, he said nothing is before the Parliament and it was a suggestion mooted by Commerce and Industry Minister Anand Sharma.
“I am sympathetic to it and the committee will have to decide if the cap needs to be reviewed,” he said.
IMF-World Bank meeting
On his participation at the IMF-World Bank meeting in Washington this week, he said the 14th general review of the IMF would be incomplete without a vote from the Untied States that has 17 per cent share.
“The U.S. was expected to vote after the swearing in of President Barack Obama but now I believe that Congressional hearing is in process. It will happen but a little later than we would have liked it to happen. The review is incomplete without the U.S. support as the U.S. has not voted. The US has a 17 per cent vote, which can block the required 85 per cent majority,” he said.
In Washington, Mr. Chidambaram is to meet with the new U.S. Treasury Secretary Jacob Lew.
Asked if he would take up the Indian tech visa issue, the Minister said “No.”
“The new bill that has been introduced (on Tuesday night) is 1,500 pages long, and we don’t have a 1,500-page bill in India. I won’t engage in any detailed discussions on the subject in Washington,” he said.
On outsourcing, he said India has moved away long ago from back office country to value-chain IT nation.
“We do a lot of work for other countries and companies but the products and services offered are moving up the value chain. One company will do well and the other not so well but that’s the name of the game,” he said.
India is a more globalised nation than many people believe, he said adding the nation exports and imports of goods and services constitute 55 per cent of the GDP.
On fixing market price for oil and gas, Mr. Chidambaram said the oil and gas investors have many places to invest from Kazakhstan to Argentina, Australia to Indonesia.
“In the long run, price must be market-related or bench marked to market price. If it’s our own oil and gas extraction in a world that is competing for investments, it’s appropriate to have a price benchmarked to market price,” he said.
Comparison between India and China
Dismissing comparison between India and China, he said there was nothing like India versus China but India and China.
“China has a particular political system, particular legal system and certain ways to approve projects and implementing it. India has a different political system and has certain difficulties in implementation.
“The foreign investors are not astute enough not to know the difference between investing in India and in China. Knowing the differences if they invest in China, good luck to them,” he added.