Uncertainty Cast Shadow Over Fundamentals

Finance minister P Chidambaram yesterday said the rupee was gradually stabilising with the political situation returning to normalcy.

Addressing a press conference here to list the reforms report card, Chidambaram admitted that the political uncertainty resulted in a negative sentiment in manufacturing, fiscal slippage and a setback to economic fundamentals.

The finance minister also disclosed that the government was shortlisting the essential items of expenditure at the moment for which the government would take recourse to the contingency fund of India. The government will approach the President to promulgate an ordinance for this and some other critical issues, he added.

Proposals for essential/ unavoidable committed expenditure items in excess of what was voted will be submitted to the President. This will include election-related expenses, he said.

The minister hinted that the government would also move some technical appropriations (which dont entail an expenditure) later and this could include oil bonds.

The minister expressed disappointment that he didnt succeed in pushing through a clutch of six bills (including Companies and Income Tax Acts) in Parliament which, according to him, would have changed the legal landscape of the country.

According to the minister, the exchange rate should be market determined and the central bank has to ensure that there is no undue speculation. Political uncertainty will take its toll and India cant be an exception. With things clearing up for now, the situation is slowly returning to normal. But I would like to watch for a few days more, the minister said.

It has been a roller-coaster year. One government fell a month after the budget and another fell six months later. Therefore, sums may be wrong. But we will try our best, he said while commenting on the fiscal targets for the year. According to him, excise collections were looking up and the Central Board of Direct Taxes which monitors and administers income and corporation tax had repeatedly assured him that the year-end targets would be met.

He however, claimed that most of the macroeconomic fundamentals were strong, though there were some weak spots like manufacturing. Even within manufacturing, though the overall outlook was bleak some sectors were looking up, he added.

The minister expressed satisfaction over the fact that the 18-month United Front government had not reversed the reforms process but had instead pressed ahead. Indian political parties should come together (after the election) to press ahead with more economic reforms, he added.