Even as the keenly watched HSBC manufacturing PMI on Friday showed Indias manufacturing activity contracted for the third consecutive month in October, finance minister P Chidambaram found imminent green shoots in the economy that he hoped would multiply with businesses not sitting on cash but investing it. On a day the BSE Sensex closed at its third straight record closing high of 21,196.81 points, the minister re-estimated the current account deficit (CAD) for FY14 to be $60 billion or even less (compared with $70 billion estimated earlier), helped by severely compressed gold imports and the pick-up in exports.
Chidambaram refrained from making any fresh projection about economic growth for the fiscal (the government's official estimate for FY14 GDP growth is now 5-5.5% and the RBI earlier this week cut its projection to 5%) but said the satisfactory 8% growth shown by key infrastructure industries in September, along with good exports and a good monsoon augured well for the economy. Analysts were, however, unconvinced about whether the demand slump in the economy has indeed bottomed out.
The minister promised further government efforts to prop up growth by clearing more stalled projects and giving a boost to the manufacturing sector. He said the government will try to get the long-pending insurance amendment Bill, which seeks to raise foreign direct investment cap in the sector to 49% from 26%, passed in the forthcoming winter session of Parliament. The draft amendments to the proposed Direct Taxes Code have been finalised and would be placed before the Cabinet for approval soon, he added.
Today I can say that CAD (for FY14) is likely to be perhaps $60 billion or less, he said, revising the previous estimate of $70 billion. CAD stood at 4.8% of GDP ($87.8 billion) in FY13, an all-time high.
Citing trade data, Chidambaram said that the 5.14% surge in exports in the first half of the fiscal and a 1.8% contraction in imports have led to the trade deficit in the April-September period easing to $80 billion from $92 billion in the same period a year ago. Overall, trade deficit will be contained and it will get reflected in the CAD, he said.
In a similar vein, PMEAC chairman C Rangarajan said in Kolkata on Friday: If the present trend in exports and imports continue, the current account deficit may remain well below $70 billion. Capital flows will not only be adequate to cover