Cautioning that there was a risk of India’s credit rating being downgraded to junk status, finance minister P Chidambaram on Friday stressed the need for fiscal consolidation and promised to announce more reform measures to revive the growth, restore investor confidence and generate jobs.
?Some bitter medicine has to be taken this yearto restore the health of the economy so that the country can look forward to much higher growth next year.?
Chidambaram?s statement came in the backdrop of Standard and Poor’s warning on Tuesday that India’s large fiscal deficit and the heavy debt burden were the ?most significant rating constraints?.
Both S&P and Moody’s accord ratings just above junk status to India right now and a downgrade is seen to be imminent if budget deficits are not tamed. After clipping 8-9% growth in the period before the 2008 global financial crisis, the country is now struggling to touch 6% GDP growth.
In 2011-12, the growth had slumped to a nine-year low of 6.5%. The growth this fiscal is expected to be only 5.8% according to RBI forecast, while it was only 5.4% in the first half of this fiscal. Terming inflation as a challenge and a worry for the government, Chidambaram said while retail inflation remains sticky, the ?good news is that WPI inflation (based on the wholesale price movement) seems to be trending downwards.?
The WPI inflation in November had moderated to a ten-month low of 7.24% from 7.45% a month ago, while the retail inflation rose to 9.9% in November from 9.75% in October.
There was, however, something to cheer on Friday. Despite a walkout by the BJP and Trinamool Congress, the Lok Sabha approved the first batch of supplementary demands for grants that seek to increase the government expenditure by R32,120 crore in 2012-13. Out of the total cash outgo of R30,804 crore, R28,500 is meant for oil subsidy and R2,000 crore to turnaround Air India.Justifying the R2,000-crore outgo for Air India, Chidambaram said, ?If AI is not kept afloat, what will happen is airfares will go up, other airline companies will simply push up their airlines because so many seats will not be available.?
Earlier, at the Delhi Economics Conclave jointly organised by the finance ministry, CII and the Delhi-based think-tank NIPFP, economic affairs secretary Arvind Mayaram said the government will meet the upwardly revised fiscal deficit target of 5.3% of GDP. The budgeted target was 5.1%.
He claimed that the reform measures taken by the government has led to the green shoots that the country was currently witnessing.
Later, speaking at the same event, Chidambaram said “I am confident that the steps we have taken, and some more steps that we will take in the next few weeks, will help turn the Indian economy around.?
The industrial production data for October denoting a 16-month high of 8.2% annual growth on the back of robust performance manufacturing and capital goods ? contrasting with negative growth reported in five out of the first seven months of the fiscal ? had brought some cheer recently.
While Chidambaram said the data indicated ?green shoots in the economy?, many analysts saw it as a sign that the economy has finally turned the corner.
?G-20 nations should help broaden ADB?s role?
Finance minister P Chidambaram on Friday asked Asian G-20 countries, including India, to take steps to enhance Asian Development Bank?s (ADB) resources to help it play a greater role in regional infrastructure financing. ?This will, in turn, allow countries such as India to contribute more to world growth,? Chidambaram said. Stating that the fiscal challenges faced by the advanced economies gave them little appetite to shore up the resources, he urged the Asian G-20 members to come together and increase ADB’s resource base so that the G-20 agenda can be carried forward.
