A sovereign bond float continues to be among the range of options to address the Current Account Deficit (CAD), Finance Minister P Chidambaram asserted today, even as former Finance Minister Yashwant Sinha asked him to tell Parliament that the centre would not countenance that measure.
Finance Ministry officials had, about a week ago, said the government would not need to resort to sovereign bonds to resolve the CAD crisis.
Replying to a Lok Sabha debate on the economic situation in the country, Chidambaram sought support – even if it was not endorsement – for a broad ten-point agenda, underlining the seriousness of the challenge that the Indian economy was facing.
He said the economy was already under stress when he took over the reins of North Block, but the events of May 2013 when the US Federal Reserve chief began talking of ending Quantitative Easing sent the world economy in a tailspin, affecting the currencies of even foreign trade surplus countries like Malaysia.
India had to tighten its belt by cutting expenditure and managed to control fiscal deficit that was threatening to touch 6%.
Chidambaram said it was imperative that fiscal deficit stay below 4.8%, adding he was committed to keeping it there.
The external debt, he said, was not as alarming a challenge as is thought. The CAD was $ 88 billion last year and this year it was $70 billion. But, he conceded there was need to add to foreign exchange reserves.
There were a range of options before the government which it could exercise, including External Commercial Borrowings, NRI bonds, etc and it would do so “at the right time” he said.
But it was crucial to revive the investment cycle and the government was in the process of doing so, acting to kickstart projects which had come to a halt. The Cabinet Committee on Investment had freed up capital amounting to Rs 1 lakh 83 thousand crore so far, the results would not be immediate but they would come over time, he said.
Public Sector Units (PSUs) were being encouraged to spend on capital expansion using idle cash piles. Capitalising banks was another way of strengthening a pillar of the economy, he said and said proceeds of disinvestment of Coal India would be ploughed back into banks which would then be encouraged to lend to entities like Coal India, ensuring returns all round.
Chidambaram said India must capitalise on the good monsoon. He conceded that manufacturing had been allowed to “languish” and ridiculed the notion that putting curbs on import of televisions could be construed as capital controls.
“If TVs are prevented from being imported into India, they will be manufactured in India. That is what we want” he said. “Manufacturing in the power, steel, metals, automobiles, electronic hardware and textiles will be encouraged” he announced.
All was not lost, he said. the trade deficit was down in July 2013 compared to the previous year, and exports were up. FDI inflows were up 16% in the April quarter over the previous quarter.
But he said, the judicial overreach had to be resolved “respectfully” so that corrupt aberrations did not lead to total sectoral shutdown, as had been the case in the mining sector. Here, Parliament needed to decide whether to reclaim policymaking ground lost to the judiciary, he said.
The debate saw a concerted attack on the United Progressive Alliance (UPA) even from erstwhile allies like the DMK, whose leader M Karunanidhi had just yesterday, supported the government on the Food Security Bill; and Janata Dal United (JDU) which has supported to the government on several issues in the Rajya Sabha, especially since it parted ways with the BJP.