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Finance Minister P Chidambaram has again made a pitch for lowering interest rates. Speaking to Business Standard here on Monday, he pointed to the latest inflation numbers to make his case. "Both core inflation and WPI inflation have come down for the month of March, CPI is down to 10.4 per cent, so these are indicators. I think the RBI governor will take note of the fact that core inflation, WPI inflation and CPI inflation have all come down and he will take a call."
Earlier, speaking at an event hosted by the Canada-India Business Council in downtown Toronto, Chidambaram said, "Going forward, we will reduce the fiscal deficit until we reach the target of 3 per cent in 2016-17 or perhaps a little earlier."
Chidambaram also said the final reading of last year's fiscal deficit would come in below 5.2 per cent. "When the actual numbers are out in the next couple of months, I'm confident it will be even a shade lower than 5.2 per cent. It will probably be 5.1 per cent," he predicted. He blamed the stimulus measures taken by the government after the 2008 economic crisis for driving the fiscal deficit and inflation "out of control". "In hindsight, it appears that while the first stimulus package was necessary, the second stimulus package was doubtful and the third stimulus package was perhaps avoidable," he added.
However, he reiterated his commitment to the path of fiscal consolidation. "I said in the year 2012-13 I will bring fiscal deficit down to below 5.3 per cent, and going forward, I will reduce the fiscal deficit every year by 0.6 per cent until we have achieved the target of 3 per cent in 2016-17. I said these are red lines. I will not breach these red lines," he declared.
The finance minister is in Canada as part of his road shows around the world to attract foreign investment. Referring to the delay in ratifying the investment protection treaty between India and Canada, the FIPA (Foreign Investment Promotion and Protection Agreement), he said two issues needed to be resolved first. "In a purely commercial dispute between the investor partner and the investee partner, the sovereign cannot be dragged into a dispute and an attempt cannot be made to resolve that dispute through an arbitration panel," he said.
Explaining the second problem, he said, "We cannot subject a decision of the highest court of the country to another arbitration process. Commercial disputes must be resolved through the domestic courts of a country."
The minister said India's internal review of its investment treaty would be completed in a few months. But, he added, if the two problems could be addressed, India could in the meantime sign a bilateral agreement on investment protection with Canada.
Chidambaram invited investment in steel, mining, roads, ports, power and construction, especially housing. He noted that infrastructure alone would need investments of $1 trillion by 2017, with a little over half coming from the private sector. He said the government was confident of raising the other half from public sources. He also called for investments in the food and food processing sectors, coal, and energy. The minister expected to have independent regulators for coal and roads in two-four months.
He told investors India's GDP would grow at 6.1-6.7 per cent this year, compared to the expected growth of 1.5 per cent in Brazil, 2.6 per cent in South Africa, 3.7 per cent in Russia and 7.5 per cent in China. He expected India to hit the 7 per cent range next year, and the 8 per cent range in the year after that, adding if growth fell short of that, "it's our fault". He also argued for a steady progression towards that rate. "I think there is merit in taking one step at a time; otherwise there will be inflationary pressures."
The president and CEO of the Canada India Business Council, Peter Sutherland, said he was impressed with the minister's response on his concerns about the delay in signing the FIPA. "Just to get a clear exposition of the issues, they are facing was helpful. It's an internal policy issue that they have to resolve, and I think we're at the top of the list once they resolve those issues."
Sutherland also said Chidambaram had told him he would bypass some of the political pressures that could hold up reforms leading up to the elections by focusing on the regulatory side that would not require enough upfront legislation. Hari Panday, president and CEO of the Toronto-based Panvest Capital Corporation, which acts as an intermediary between Indian and Canadian businesses, said, "The messaging that he gave today was the most clear messaging any of the Indian leaders have given."
While in Toronto, Chidambaram also met with CEOs of major Canadian companies, and pension plans which collectively manage around half a trillion dollars in assets. He pointed to a new momentum in Indo-Canadian ties over the past four years, which he said was initiated by the Canadian government in recognition of India's economic growth.
Chidambaram headed to Ottawa, from Toronto, to meet his counterpart Jim Flaherty and the governor of the Bank of Canada , Mark Carney.
