FM sees current account deficit of $60 bn

Says a rise in exports will continue until the end of March

Indicating that the economy is showing green shoots of recovering, Finance Minister P Chidambaram today said current account deficit (CAD) this year would be brought down to $60 billion, or about 3.1%, and fiscal deficit would be contained at 4.8%.  

“Steps taken in the last few months have beginning to yield results. CAD is under control. I’m confident we will be able to adhere to red line on fiscal deficit. Core sector growth, strong monsoon and healthy exports augur well for economic growth,” he told a press conference today.

CAD had touched all-time high of $88.2 billion or 4.8% of the GDP in 2013-14. Earlier, the government had said CAD would be contained at $70 billion this year, which is 3.7% of the GDP. Now a lower CAD has been projected on the back of declining gold imports and increase in exports.

Core sector industries recorded 8% growth in September, highest in the past 11 months. The government is expecting a bumper crop this year on the back of a good monsoon.

The finance minister said GDP growth would be over 5% this year, but acknowledged still there were many challenges like high inflation and low investment, but fiscal and monetary measures taken in the recent months would help cool down prices and that green shoots would be seen in investment too. He urged the corporate sector to start investing, assuring full government support for new proposals.

“Bank credit has grown by 16.8% in April-August. There is a sharp rise in credit demand and if it is maintained industrial activity would show good progress going forward,” he added.

Chidambaram endorsed the repo rate hike by the Reserve Bank of India earlier this week. He said though the stance of the government continued to be pro-growth, but the situation had changed in the last few months and there was a need to look at the policy action in the context as it was not only about high inflation but also currency stablisation.

The US Federal Reserve had mentioned about reduction in its bond-buying programme on May 22, which led to a sell-off in emerging markets. Tapering fears have been allayed till January and the government is confident markets won’t be affected much since investors have already factored it in.   

After taking a beating two months ago when the rupee was hitting a fresh low every day, Sensex on Friday hit an all-time high of 21,196 on the back of strong buying from foreign investors. Rupee today ended at 61.74 against dollar, down 24 paisa. It had touched an all-time low of 68.85 on August 28.

Chidambaram cautioned investors against “excessive exuberance” about markets, but added rupee was still above appropriate exchange rate.
   
Talking about the legislative agenda of the government, he said the government would try to get passed a dozen Bills in the forthcoming Winter Session of Parliament, including that on securities market and the Insurance amendment Bill, which seeks to raise the FDI in the sector to 49% from 26%.

“Most parties, including the principal opposition party, have expressed their support for insurance bill. I hope with majority support, if not unanimous support, we will be able to pass the bill," he said.

On the Direct Taxes Code Bill, he said draft amendments have been finalised and would be placed before the Cabinet for approval.

Asked about retrospective tax issue, he said amendments to the Income Tax Act would be introduced in Parliament only after the Vodafone tax case was resolved.

"We are very clear in mind what we want to achieve is reconciliation. We want to achieve a settlement that is fair and that will be acceptable to Parliament... I think they (Vodafone) are also clear on what they want to achieve, I think they are not clear of the process by which they want to achieve it," he said.

Chidambaram said the country's first all women bank was likely to be inaugurated on November 19, the birth anniversary of former Prime Minister Indira Gandhi. But due to the model code of conduct in Delhi, the government has sought Election Commission’s approval.