Fiscal deficit would be contained at 4.8 per cent and the CAD at below $60 billion this year- P Chidambaram

The macroeconomic as well as microeconomic fundamentals make India an attractive and safe investment destination

The Finance Minister (FM) P Chidambaram has invoked foreign investors to invest in India. While listing various investment avenues he stated, India can offer to the investor a variety of investment opportunities. There are Government securities and corporate bonds. There are mutual funds and Infrastructure Development Funds. We can offer equity in our public sector enterprises that are under the disinvestment programme. There is a clutch of projects in the oil and gas sector that will welcome strategic investors. Shortly, we will offer a public sector Exchange Traded Fund that will allow you to buy units backed by underlying equity shares. Private promoters have offered a number of specific projects in sectors such as roads, power, urban infrastructure, ports and water transportation, and in Special Economic Zones.

The finance minister also said a special window to attract more funds into foreign currency non resident (bank) accounts or FCNR(B), opened by the Reserve Bank of India two months ago, will close on November 30. It has so far received $16 billion. FCNR(B) allows the account holder to retain his deposits in foreign currency and earn interest at a rate up to LIBOR-plus 400 basis points.

 

He appealed the foreign investors to explore investment in India assuring lower fiscal deficit and current account deficit (CAD), stable currency, high growth and moderate inflation. In the Second South Asian Diaspora Convention in Singapore, he said, India's potential growth rate is 8 percent and above. Also the fiscal deficit must be contained below the widely-accepted norm of 3 percent of GDP. The Current Account Deficit must be capable of being financed safely. Inflation, even allowing for the space required by a developing economy, must be moderate. The exchange rate must be resilient even while it is insulated against speculative attacks and excessive volatility.

The Indian diaspora is estimated at over 20 million. While it is only two per cent of India's population, their total wealth is estimated at $1 trillion, which is nearly 50 per cent of India's GDP. Of the $1 trillion, one-half is estimated to be financial assets. Their income is estimated at $400 billion a year.

He emphasized on the importance of the foreign investment in India. There is no country in the world that requires so much investment as India does in virtually every sector of the economy he said. On infrastructure alone, the 12th Plan document covering the period 2012-2017 envisages an investment of USD 1 trillion, of which one-half is expected to come from the private sector. A few examples will illustrate the magnitude of the need and the challenge. In the power sector, the 12th Plan document projects an addition of 88,577 mega watts of capacity during the period of five years. In railways, we intend to add 10,000 kilometres of rail track while doubling 5,344 kilometres of rail track. In steel, we plan to enhance capacity from the current level of 84.4 MnT to 142.3 MnT. In the port sector, total capacity of our ports will increase from 702.8 MnT in 2012 to 884.6 MnT by 2017. We are now engaged in building 34 non-metro airports, he added.

Ingeminating that the fiscal deficit would be contained at 4.8 per cent and the CAD at below $60 billion this year while inflation would moderate to a level below five per cent, he said the macroeconomic as well as microeconomic fundamentals make the country an attractive and safe investment destination.

Any Government must be fully alive to these fundamental requirements of a stable and progressive economy. Given these fundamentals, it is investment that will determine the growth rate of an economy, added the FM. He said that the capital surplus countries also need to invest. They cannot invest in their domestic economies alone. Given the increase in their savings and their ageing populations, they need to find investments that will give them higher returns over a long term. They need to find avenues of investment for their growing pension funds and sovereign wealth funds.

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