Finance ministry officials had, about a week back, said the government would not need to resort to sovereign bonds to resolve the CAD crisis.
Replying to a Lok Sabha debate on the the country’s economic situation, Chidambaram sought support - even if it was not endorsement - for a broad 10-point agenda, underlining the seriousness of the challenge facing the Indian economy.
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 Federal Reserve Chairman Ben Bernanke began talking of winding down the US’ bond-purchase programme — had sent the world economy in a tailspin, affecting the currencies of even foreign-trade-surplus countries like Malaysia.
India had to tighten its belt and cut expenditure to control the fiscal deficit, which was threatening to touch six per cent of GDP. Chidambaram said it was imperative that deficit stayed below 4.8 per cent, adding he was committed to keeping it there.
The external debt, he said, was not as big a challenge as was thought — CAD, which had stood at $88 billion last year, was $70 billion this year. But, he conceded there was need to add to forex reserves. There were before the government a range of options 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 that had come to a halt. The Cabinet Committee on Investment had freed up capital amounting to Rs 1,83,000 crore so far — the results might not be immediate but those would show over time, he added.
Public-sector undertakings (PSUs) were being encouraged to spend on capital expansion, using idle cash piles, he said, adding capitalising banks was another way of strengthening a pillar of the economy. The 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 also said that India must capitalise on the good monsoon. He conceded 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.”
All was not lost, he maintained. Compared with the previous year, the trade deficit was down in July and exports were up. FDI inflows were up 16 per cent in the April quarter over the previous one.
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 the policymaking ground lost to the judiciary, he said.
The debate saw a concerted attack on the United Progressive Alliance, even from the erstwhile allies like the Dravida Munnettra Kazhagam, whose leader M Karunanidhi had only yesterday supported the government on the Food Security Bill. The Janata Dal United, which has supported to the government on several issues in the Rajya Sabha, especially since it parted ways with the Bharatiya janata Party, also chose to launch an attack on Tuesday.