Grappling with the stressed economy, Finance Minister P. Chidambaram, on Saturday, said “hard decisions” would be taken in the next few days and weeks to trim wasteful expenditure and curb import of “inessential” items.
“We are going through a period of stress...we have to take some hard decisions. Many of these measures are being taken, and many measures will be announced in the next few days and weeks. Some measures to curb import of inessential items will also be announced. All these measures taken together will have beneficial impact”, he said, winding up a debate on Appropriation Bill in the Rajya Sabha.
Describing inflation as the worst form of taxation which hit the poorest the most, he said, the government would be coming out with more measures to deal with the price situation.
On hiking oil prices in the backdrop of rising prices in the international market and rupee depreciation, Mr. Chidambaram said “no decision has been taken and no decision will be taken in haste” and the government will weigh pros and cons before announcing any step.
Responding to the suggestion for cutting taxes on petroleum products, he said the matter could be considered provided states too agreed to reduce the incidence of tax on oil goods.
Attributing the sudden fall in the value of rupee to the May 22 announcement of the U.S. Federal Reserve regarding withdrawal of monetary stimulus, he said the government would take more measures to increase flow of capital to contain volatility in forex market.
Mr. Chidambaram said, “When you are facing gloomy situation, wasteful expenditure has to be curbed....You call it austerity measures, you can call it cut in non-Plan expenditure...while we must continue to spend and continue to find money for productive investment.”
Stating that there was need to curb all inessential imports, he said, “When you have the money, you can import anything and it does not make any difference to the economy. But when you are facing a stressful situation, you have to curb inessential imports.”
Regretting that India had to import coal despite having essential fuel in adequate quantities, he said a way had to be found out to deal with the issues concerning mining of coal and export of iron one fines.
Import of coal and ban on export of iron ore fines, in addition to large import of gold, have been adding to the pressure on the current account deficit (CAD), which has touched an all-time high of 4.8 per cent of the gross domestic product (GDP) in 2012-13.
Referring to inflation, Mr. Chidambaram said it could partly be attributed to the rise in the minimum support price (MSP), which in itself was a good thing as it meant more income for the farming community.
The other reason for inflation was spike in crude prices in the international market, Chidambaram said, adding “We don’t fix prices of crude oil. Yesterday it crossed 115 dollar per barrel...(but) we have to bear the consequences”.
Similarly, he said, India had to depend on import of edible oil and pulses, which also drove inflation.
On declining value of rupee, Mr. Chidambaram said its rate was market determined and there was no question of going back to the pre-1991 days of fixed exchange rate.
Observing that value of rupee had improved during the last few days, Mr. Chidambaram said, “...I keep my fingers crossed. We are fighting many unknown factors in the currency markets...but measures are being taken, measures will taken to increase dollar inflow,” he said. Referring to inflation, he said, it had to be tackled by addressing the supply-side constraints and removing distribution bottlenecks.