Taking the cue from Fitch Ratings’ prescription advocating “an acceleration in economic reforms that leads to a material improvement in potential growth rate consistent with stable consumer price inflation and external balance” as one of the main factors that could trigger positive rating action, Finance Minister P. Chidambaram, on Thursday, provided a curtain-raiser on a host of reform measures and policy decisions that were in the pipeline aimed at spurring investment and growth.
“I could not agree more with Fitch when it said more reforms are needed,” said Mr. Chidambaram at a press conference the day after Fitch revised India’s credit rating outlook from ‘negative’ to ‘stable’ and went on to present the government’s assessment of the state of the economy and the number of policy decisions that are to be taken during this month and the next on coal and gas pricing, review of FDI (foreign direct investment) caps on various sectors, including defence, to accelerate the process of investment and growth.
“I am looking forward to more reforms... I expect a number of decisions in the next few days and weeks... In June, you can expect a number of decisions taken and implemented that will accelerate reforms and spur investments in critical sectors,” he said. Among them is the government’s intent to give a push to 30-40 “low hanging fruits” out of the 250 private sector projects that can quickly take off the ground and, thereby, boost economic growth.
“I would think the following issues will be resolved before the end of June: Firstly, on coal pricing and coal allocation to power plants. Secondly, gas pricing. Thirdly, on FDI limit, and fourthly, on a number of steps that the Securities and Exchange Board of India (SEBI) is contemplating based on the Chandrasekhar Committee report, which was submitted on Wednesday,” Mr. Chidambaram said.
The Finance Minister indicated that the government was in favour of the panel’s recommendations on which the market regulator’s board was to take a view on June 25. “We think the Chandrasekhar committee report is extremely positive, and they deserved to be accepted, of course, after discussion,” he said.
No need for panic over rupee fall
On the more immediate concern in stock and exchange markets, Mr. Chidambaram held out an assurance to investors that there was no need for panic over the rupee depreciation. He pointed out that what was happening was not unusual to India as countries with large current account deficits (CADs) such as South Africa, Brazil, Mexico and Turkey had taken hits on their currencies.
“We are concerned about the volatility. I think steps are being taken to ensure that there is no volatility…The rupee will find its level, and it is quite possible that it will regain some of the losses suffered in the last few days. I don’t think we need to panic about what is happening in the rupee.
“It does put pressure on inflation, subsidy bill, especially on imported commodities,” he said.
Despite the pressure on CAD, the Finance Minister ruled out any further increase in import duty on gold saying “I don’t want to become too unpopular. We will see and appeal to the nation to stop buying gold as each ounce of the yellow metal has to be paid for in dollars while the customers buy it in rupees.’’
On the issue of interest rates on loans, Mr. Chidambaram agreed that banks should pass on the rate cut to borrowers and stated that he would call a meeting with bank chiefs to discuss the issue.
While the RBI till date had eased rates by 130 basis points, the banks have passed on a mere 30 basis points to customers.
On easing of caps on FDI, Mr. Chidambaram said the process of decision-making was on the last lap as the report of the committee headed by DEA Secretary Arvind Mayaram would be available early next week, and the matter would then be taken to the Prime Minister.
