CAD, fiscal deficit two main problems of Indian economy: Chidambaram

RBI too says large fiscal deficits will crowd out private investment and stunt growth impulses

Finance Minister P Chidambaram has described the current account deficit (CAD) and fiscal deficit (FD) as the two main problems faced by India, even as he wooed European investors to have a confidence in the India growth story.

At Frankfurt yesterday, Chidambaram, however, asserted that under no circumstances he would allow the Centre's fiscal deficit to breach the revised target of 5.3% of GDP for the current financial year.

His assurance on fiscal deficit front came a day before the RBI today cautioned against rising gap between the government's expenditure and receipts. The centre bank said large fiscal deficits will accentuate the CAD risk, further crowd out private investment and stunt growth impulses.

The Centre's fiscal deficit was projected at 5.1% of GDP for 2012-13, but it was revised mid-way to 5.3%. Till November, fiscal deficit covered 80% of budget estimates and 77% of revised target, assuming 14% growth in nominal GDP as was projected in the Budget.

CAD widened to a record 5.4% of GDP in the second quarter of the current financial year, forcing a marginal draw down from the forex reserves.

Speaking at a roadshow on investment opportunities in India, the Finance Minister said the economy was on the right path to achieve growth levels recorded during 2004-2008.  

"I am very optimistic that India can grow at a (high) rate for the next 20 or 30 years," Chidambaram told a gathering of around 200 representatives of leading European companies, banks and other financial institutions.     

Chidambaram had held similar meetings in Hong Kong and Singapore to woo investors.

India has been growing at an impressive rate of even 9% before the global financial meltdown pulled the growth rate down to 6.7% in 2008-09. in 2011-12, it slowed down further to 6.5% after recording 8.4% growth in 2009-10 and 2010-11.

The growth in the first half of the current financial year stood at 5.4% and the economy is headed for a decade low expansion in the current financial year. Finance Minister expects the economy to expand by 5.7%, while RBI today projected it to expand by 5.5%.     

   

Besides attending the roadshow, Chidambaram held other bilateral meetings with business leaders to promote India as an attractive destination for foreign investments.   He also had a meeting with Anshu Jain, India-born co-CEO of Deutsche Bank.