Govt to fully fund CAD, more reforms on anvil: FM

Says more steps will be taken to address supply-side bottlenecks to moderate inflation

Finance Minister P Chidambaram on Tuesday said more reforms would be introduced by the government in the coming days and would be able to fully finance the current account deficit (CAD) without dipping into foreign exchange reserves.

“Some more decisions are on the anvil. Reform is a work in progress,” he said while addressing a gathering of venture capitalists and private equity investors.

Chidambaram said more steps would be taken to address supply-side bottlenecks to moderate inflation. He said inflation would come down to tolerable levels if crude oil prices don’t rise further.

Inflation, hovering around nine per cent, has been brought down to below five per cent in the last nine months. After a decline for four months, it inched up to 4.9 per cent in June.  The finance minister assured investors CAD would be financed without depleting forex reserves as it happened last year and it would be contained below last year’s level of 4.8 per cent of GDP.

“At the end of the year (2012-13), not only did we finance the CAD but also added $3.8 billion to our reserves. This year, the CAD looms large. We are doing our sums and we are confident that with some stern measures that we have taken and we will take, we can contain the CAD to a level below last year’s CAD. We will finance it fully and safely without running down reserves,” he said.

Putting the blame on the economy's current state of affairs at the doors of his predecessor Pranab Mukherjee, Chidambaram said the post-crisis stimulus packages announced by the government were in hindsight responsible for the slowdown in growth. Chidambaram said the economy grew at nine per cent between 2004 and 2008.

But following the financial crisis, several governments around the globe announced stimulus packages. “Our government also responded with stimulus packages. The first package was text-book economics, the second was avoidable. The third was wholly unnecessary,” the minister said. “That is with the benefit of hindsight.”