Indicating that the Indian economy was challenged, Union Finance Minister P. Chidambaram on Monday reasoned against “obstructionism” by the Opposition, as the government’s failure in pushing through key reforms would put the country at risk of a sharp and continuing economic slowdown.
Inaugurating the annual Economic Editors’ Conference here, Mr. Chidambaram put up a stout defence of the reform measures already rolled out. He sought to reason why more such measures were necessary and appealed to the Opposition to cooperate in this regard.
“Every government is entitled to lay down policies. Opposition to policies is legitimate, obstructionism is not … The government of the day must be allowed to lay down policies, pass legislations wherever necessary and get on with the job of implementing those policies. Without reforms, we risk a sharp and continuing slowdown of the economy which we cannot afford, given the imperative need to generate jobs and incomes for a large population, most of whom are young,” he said.
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The thrust of his argument was mainly in an apparent reference to the Opposition’s threat to thwart the implementation of foreign direct investment (FDI) in multi-brand retail and at a time when the government has also moved ahead with a higher investment cap in the insurance sector.
The Minister noted that the insurance sector alone was in urgent need of about $ 5-6 billion in fresh investment for achieving higher penetration. He indicated that the government intended to meet the Bharatiya Janata Party and other parties, ahead of the winter session of Parliament to seek their support for raising the FDI cap to 49 per cent from 26 per cent in view of the huge capital requirements.
“Every company already has 26 per cent FDI. So if you raise the cap to 49 per cent, then there is headroom for them to bring in more capital,” he said.
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Mr. Chidambaram pointed out that by and large, the provisions of the insurance Bill were along the lines recommended by the Standing Committee on Finance headed by BJP leader Yashwant Sinha and, therefore, he did not expect any opposition to the entire Bill or most of its clauses.
“The disagreement is only ... to one clause [related with FDI ceiling]. On that clause, I expect a vigorous debate and I hope I will be able to convince the Opposition. Even before the Parliament session, I intend to meet with the principal and other Opposition parties and ask for their support.”
He said, “Long-standing structural reforms required to achieve high investment and high growth rates have been held back because of many reasons. Among them is need to forge a consensus on reforms, the practical necessity to garner support across the political spectrum to pass legislation ... Nevertheless we are now addressing the difficult areas of reforms.”
As for the other reform measures that need to be in place, Mr. Chidambaram promised to tackle the high inflation, fast-track disinvestment — of which Rashtriya Ispat Nigam is set for roll-out later this month — and also announce a road map for fiscal consolidation based on the feedback received on the Kelkar Committee report.
Confident that with requisite savings and high investments India's overall growth rate would recover to 8 per cent and more, and perhaps touch 9 per cent, the Minister said: “We should keep that rate as our objective and progress towards achieving it.”
As for the government's decision to permit FDI in multi-brand retail, he said the step was good for the country. “We must not fear foreign investments in India. We have the sovereign right to decide where and how foreign investments would be allowed into India … I have no doubt ... FDI in retail, aviation and FM radio broadcasting are decisions that will benefit the economy and the country.”
On containing inflation and the high fiscal deficit, he said the appreciation in the value of the rupee would help in lowering the cost of imported crude, petroleum products and fertilizers.
“The value of rupee is an important factor that affects the value of imports. A depreciating rupee will also impact trade and investment. Hence the need to stabilise the exchange rate. I believe we have met with moderate success,” he said, while noting that the other major task was to contain the fiscal deficit. “No one will have confidence in the Indian economy if there is uncertainty about the fiscal stability of the country.”