Greenshoots visible, 5-5.5 per cent growth likely: Chidambaram

Published Nov 15, 2013, 10:49 pm IST
Updated Mar 18, 2019, 6:24 pm IST
Union Finance Minister P. Chidambaram addresses Bancon 2013 Conference in Mumbai on Friday - PTI
 Union Finance Minister P. Chidambaram addresses Bancon 2013 Conference in Mumbai on Friday - PTI

Mumbai: Encouraged by some greenshoots, Finance Minister P. Chidambaram on Friday exuded confidence the economy will recover in the second half and clock 5-5.5 per cent growth in 2013-14 but cautioned investigative authorities should not treat all commercial decisions as motivated or malicious.

He also called upon bankers to deal firmly with wilful defaulters, but handhold those who are reeling under the impact of economic slowdown.

"As far a government is concerned, I assure you as long as you take decision based on facts and circumstances available to you at that time and do it at an appropriate level and an appropriate committee or an appropriate forum and exercise your best judgement, we will defend you and stand by you", he said while addressing bankers and economists at Bancon 2013.

He further said the government will be able to contain fiscal deficit to 4.8 per cent of the GDP and narrow down the current account deficit (CAD) to below USD 56 billion, though inflation still continues to be worrisome.

"The green shoots that are visible here and there, will multiply and the economy will revive. There will be an upturn in the second half of this year and it is quite possible that the estimates made by the Reserve Bank or the PMEAC or the government of growth between 5-5.5 per cent will be realised," he said.

Chidambaram said that it was a pity for a country of India's size not to achieve its potential growth rate of over 8 per cent.

The economic growth rate slipped to decade's low of 5 per cent in 2012-13 and during the first quarter of current fiscal it stood at 4.4 per cent. The growth figures for the second quarter are scheduled to be announced on November 29.

"Given that savings are above 30 per cent of GDP, and given the normal incremental capital-output ratio ...the measures that we have taken will yield results and we will get back to the high growth path. Movement towards the high growth path will be visible in 2014," Chidambaram said.

As regards the price situation, he said managing inflation was "the most difficult challenge". He said the Wholesale Price Index (WPI) inflation, which was 1.9 per cent in 2009, has risen to 7 per cent. While the retail inflation measured by Consumer Price Index (CPI) was above 10 per cent, the food inflation was over 12 per cent.

"We were able to contain WPI inflation for most part of this year, until the recent spurt...We have not been able to contain CPI based inflation mainly because it is driven by food items especially fruits, vegetables, eggs, meat and other items", he said.

Pointing out that monetary policy did not have any impact on food prices, the Minister said, "the only way we can contain food inflation is to augment supplies... For supplies to rise you need greater investment, greater production, greater distribution, you need better logistics and you need to reach the products to stores.

"We have a challenge and we have to take note of that challenge and we have also to recognise that challenge brings with it a number of steps that are required, what we would call policy including monetary policy."

Referring to the issue of fiscal deficit, the Minister said, "we will do whatever it takes to contain fiscal deficit in current fiscal to 4.8 per cent of GDP. It is a red line, a red line which we can breach only at our peril. We will not breach that red line and we will contain the fiscal deficit."

As regards the Current Account Deficit (CAD) deficit, the Minister said, "last year we had an unprecedented USD 88 billion of CAD. It was minor miracle that we were able to finance it fully. And even add small amounts to our reserves." 

The government initially proposed to bring down the CAD, the difference between inflow and outflow of foreign exchange, in the current financial year to USD 70 billion and later improved the target to USD 60 billion.

"Two days ago the RBI Governor (Raghuram Rajan) said CAD would be contained at USD 56 billion or below. I am trying to do better and contain CAD at below USD 56 billion this year", Chidambaram said.

Asking the banks to help the industry in difficulty, he said, "while we should be stern to wilful defaulters, we must hold the hand of those who are victims by external circumstances.

"This is the period for bankers and customers to work together to keep faith in each other because when we come out of the trough... when upturn begins and when we see growth quarter after quarter that (would be the) time when most banks would be healthy, balance sheets would become healthy."

Regretting that often the decisions were questioned by authorities, the Minister asked the bankers not to desist from taking decisions based on facts and circumstances at a given time.

He stressed that "no business can survive and (no) person can take a decision if every decision is questioned as motivated or malicious....I think that would be most dangerous decisions that authorities can take and I would strongly advise that is not the approach to adopt."

A decision could turn out to be a poor decision or even wrong decision, but that does not necessarily mean that it was a dishonest or a malicious decision, he added.



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