Green shoots visible, CAD to come down to $60 bn: P Chidambaram

Nov 01 2013, 19:08 IST
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Chidambaram further said the government will endeavour to get the long-pending insurance amendment bill. Chidambaram further said the government will endeavour to get the long-pending insurance amendment bill.
SummaryCore sector growth...strong monsoon and healthy exports augur well for economic growth.

Hinting that the worst for the economy may be over, Finance Minister P Chidambaram today said the country will have a bumper harvest and the troublesome CAD will come down to USD 60 billion on back of rising exports and declining gold imports.

"Core sector growth...strong monsoon and healthy exports augur well for economic growth. There are still many challenges, most important being inflation and reviving investment.

"But I think there will be green shoots even in investment. We are confident that the measures taken by the RBI and our own measures at maintaining fiscal discipline will eventually bring about a moderation of inflation", he said while addressing a press conference here.

The Minister also expressed the government's resolve to extend full support to new investment proposals and said that corporates need not sit on cash. He asked them to start investing.

Chidambaram further said the government will endeavour to get the long-pending insurance amendment bill, which seeks to raise the FDI in the sector to 49 per cent from 26 per cent, passed in the forthcoming Winter Session of Parliament.

As regards the Direct Taxes Code (DTC), he said, the draft amendments have been finalised and would be placed before the Cabinet for approval.

Referring to Current Account Deficit (CAD), the difference between the inflow and outflow of foreign exchange, Chidambaram said that he was hopeful of reducing it to USD 60 billion, down from the earlier estimate of USD 70 billion.

The CAD deficit touched the all time high of USD 88.2 billion or 4.8 per cent of the GDP in 2013-14.

Reflecting a pick up in the industrial activity, the core sector industries recorded 8 per cent growth in September, highest in the past 11 months.

Referring to price rise, Chidambaram said good monsoon and subsequent bumper agriculture output will improve the inflationary situation.

On fiscal deficit, the Minister said the budgetary target of 4.8 per cent of the GDP would be met and also the Rs 40,000 crore disinvestment target.

"I am confident that we will be able to adhere to the red line on the fiscal deficit" Chidambaram said.

Recalling his recent US visit, he said, "I got the impression that they continue to retain faith in India's economy and that the investment cycle which in my view is revived, will only gain momentum in next few weeks and months."

Referring to the rupee, the Minister said, "by and large stabilised. But in my view it is still a little over what I would consider the appropriate exchange. There is no such thing called appropriate exchange rate, but is slightly over the appropriate exchange rate level".

The rupee, which dipped to a historic low of 68.85 to a dollar in late August, has improved significantly and today closed at 61.74 to a dollar.

To a question on retrospective tax issue, he said, amendments to the Income Tax Act would be introduced in Parliament only after the Rs 11,200 crore-Vodafone tax case was resolved.

The government has sought a non-binding conciliation with the British Telecom major Vodafone to resolve the tax issue ensuing retrospective amendment to the Income Tax Act in 2012.

"The question is how we move forward... Amendment (to the IT Act) has to be moved but I can move that amendment only after the Vodafone case is resolved", he said.

Chidambaram also defended the Reserve Bank's decision to raise the short-term lending (repo) rate by 0.50 per cent in two trances, saying it had to be viewed in the context of inflation and the depreciating rupee.

"The market seems to be very happy. More than anyone else the market seems to welcome the RBI and government measures... but I would caution investors against excessive exuberance", he said.

The benchmark BSE Sensex fell back after scaling a lifetime high on the last day of the Hindu Samvat year 2069 and still ended at a fresh closing record today with a 32-point gain amid continued foreign fund buying and renewed optimism about the economy.

The RBI had in its last two monetary policy reviews raised the short-term lending rates to contain high inflation. It had also reversed liquidity tightening measures including reducing the Marginal Standing Facility rate, which were undertaken to curb currency volatility.

Answering questions on the reluctance of some global multi-brand retail companies to enter India, Chidambaram said, "one or two multi-brand retailers will enter the market sooner than later".

Although the government had opened multi-brand retail for foreign investment last year, it has yet to receive any proposal from any global company.

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