Finance Minister P Chidambaram on Monday said the current account deficit in 2013-14 would be around the same level as last year’s $88 billion, but stressed that financing it won’t be a problem.
?For 2012-13, CAD stood at about $88 billion (4.8% of GDP), which was fully financed by the government. It is estimated to be around same number for 2013-14 and we are hopeful that we will be able to finance it fully without drawing reserves,? the minister said.
The current account deficit reached a record level last year primarily due to the surge in gold and oil import bills. Chidambaram endorsed the measures taken by the RBI recently to stabilise the rupee, but said the government’s mandate to promote growth could at times be in conflict with that of RBI. ?The central bank’s mandate should not be limited just to price stability, but also promote growth and generate employment,? he said.
He added that banks had enough funds to meet the credit demands and the onus of coming up with large investment projects rests with the industry. ?I have spoken to banks and have been assured that the credit demands will be met. Demands are picking up in agricultural, retail and real estate sector and it is up to the industry to come up with investment projects.?
Speaking on restriction on imports of gold, the minister added, ?I cannot tell people to not buy gold, but I can request you to moderate the purchases. Gold bought in India is not produced in India, and even though you pay in rupees, it is actually entirely in foreign currency, which increases the CAD gap and hence we need stronger measures to moderate gold.?
Talking on measure to tackle the high CAD, he said, ?In simple terms, CAD is foreign exchange we earn minus the foreign exchange we spend. In the long run, we must increase our exports, and in the immediate measures, we can fill the hole by making India an attractive foreign investment destination. That can be done by foreign direct investment (FDI), foreign institutional investment (FII) or external commercial borrowings (ECB). Of these FDI is the most suitable alternative.?
At Tuesday’s policy review, the central bank is expected to address several conflicting concerns including volatile exchange rate, liquidity issues and slowing growth. Last week, RBI governor D Subbarao met Prime Minister Manmohan Singh and the finance minister and is believed to have discussed the current macro-economic scenario. Despite pressure from the government as well as the industry for a steep cut in interest rate, the RBI has been maintaining a tight monetary stance.
When asked whether the upcoming Loksabha elections are affecting the capital investment, Chidambaram quipped, ?Elections have nothing to do with capital investments. How do you know the government which comes into power will be industry friendly??.
On being asked if UPA 3 might not happen, he said, ?UPA is industry friendly already, and if it comes to power next year, it will be even more friendlier.?
Touching upon the Jagdish Bhagwati vs Amartya Sen debate, Chidambaram said, ?Bhagwati’s argument cannot be complete without Sen’s argument. India can never be a truly happy and prosperous country unless our passion for growth is combined with compassion for poor. Growth is a tide that lifts the boat. I’m neither taking sides nor presenting a third narrative. But we must combine passion for growth with compassion for poor.?