 "FM assures US investors of more reforms")
After hosting a meeting of about 100 investors in Boston last night, Citi Group, in a report, said Chidambaram had laid out the agenda for the next few months — “regulator for road and coal, resolution of coal supply issues (in the next few weeks) and the likelihood of another round of power tariff hikes”. More importantly, there was a commitment on delivery and confidence the coming elections wouldn’t be a hitch, the report said.
On fuel pricing reforms, Chidambaram said petrol prices had been freed, while the subsidy on liquefied petroleum gas had been capped. “Diesel rates have been hiked three times already, in steps of 50 paise a litre. Elections should not derail the pricing reforms,” Citi quoted the finance minister as saying. The meeting with institutional investors builds on the government’s reforms and follows similar meetings in Hong Kong in January. “The strong attendance highlights investor interest in India policy issues,” the report said. It added the government was in a high-gear mode, and this was reflected in the economic and market pick-up.
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Chidambaram said for FIIs, India would announce a risk-based registration system. “FIIs would be classified into three categories, with SWFs (sovereign wealth funds) and investors from FATF (financial action task force) countries afforded simpler KYC (know your customer) norms and fast-track approvals,” he was quoted as saying.
The finance minister’s words and his visits abroad underscored the importance of foreign investors to India, Citi said. “The government’s recent actions reaffirm this — abolishment of FII sub-limits in corporate and government bonds, lower withholding tax for long-term infra bonds, simpler KYC norms & fast-track registrations.” The report quoted Chidambaram as saying the government would launch about a dozen infrastructure debt funds.
Considering the plummeting gold and oil rates augur well for lower current account deficit (CAD) and inflation, the Citi report said headwinds in the form of high CAD and prices were now turning into tailwinds for India. Chidambaram said the government aimed to reduce core inflation to less than 3.2 per cent. In March, it had fallen to a three-year low of 3.41 per cent.
The finance minister expressed his commitment to reducing the Centre’s fiscal deficit by 60 basis points this current financial year. He said the deficit could fall from an estimated 5.2 per cent in 2012-13 to lower than 4.8 per cent of gross domestic product, the Budget estimate for this financial year. Citi quoted him saying the government was targeting 6.1-6.7 per cent economic growth this financial year, compared to a decade-low growth of five per cent in 2012-13. He exuded confidence growth would rise to seven per cent in 2014-15 and eight per cent in 2015-16.
At his address at Harvard University yesterday, Chidambaram had said India would have to rely on more investments to boost its economy, unlike developed countries and its neighbour China. India’s environment was conducive to attracting foreign direct investment, he had said.
He said as the global economy looked for ways to stage a recovery, the developed world would have to save more and emerging market economies such as India and China would have to increase spending. He also took a dig at tendencies in the developed world to keep their savings in those countries.
At the university’s South Asian Institute and Mahindra Humanities Centre, he said among developing economies, India would have to spend more on investment, while China would have to spend more on consumption.
This adjustment has inherent challenges for both the developed world, as well as emerging market economies, which would have to increase the comfort level of international investors to ensure they feel their capital is well protected. “After all, why would they invest over the long term if their capital can be expropriated by a change in laws or by the whims of the government? The best guarantor of investment protection is a stable and democratic political structure, a belief in the rule of law and a transparent and independent legal system,” he said, asserting India had all these three ingredients.
The finance ministry is looking at resolving a tax dispute with Vodafone, after which it would move changes to the retrospective amendments to the Income Tax Act. The amendments introduced by former finance minister Pranab Mukherjee had evoked sharp criticism from foreign investors.
Citing enormous opportunities for foreign capital in India, Chidambaram cited the Delhi-Mumbai industrial corridor, which entailed an investment of about $90 billion.
Chidambaram expressed dissatisfaction at the fact that even as economic power was shifting to emerging markets, former powers still dominated multilateral organisations. “A real concern is the old great powers do not feel the need for change because they know emerging markets do not have common goals and can be easily divided. But denying emerging markets real power will be very short-sighted,” he said.