On a day the Sensex closed at a record high, Finance Minister P. Chidambaram set the stage for a cracking opening to the ‘Muhurat’ trading session on Diwali day, which also marks the start of the Hindu new year, by indicating that the worst is over for the economy. He also sharply lowered the estimate for the current year’s current account deficit.
Chidambaram said ‘green shoots’ were visible on multiple fronts. A bumper harvest is expected, core sector growth numbers are encouraging, and a strong rebound in exports as well as reduced imports on the back of a fall in gold imports are likely to bring the CAD down significantly.
“The current account deficit is estimated to be $60 billion or below this year,” the Finance Minister said at a press conference. The earlier estimate was $70 billion; CAD had hit a record $88 billion last year.
During the first six months (April-September) of the current year, exports grew 14 per cent while imports fell 1.18 per cent. This lowered the trade deficit.
According to the Finance Minister, the trade deficit in the April-September period stood at $80 billion down from $92 billion in the corresponding period of last year.
“We expect the same momentum to continue in the remaining five months of the year.”
On gold, he said that imports amounted to 47.75 tonnes in July, came down to 3.38 tonnes in August, rose to 11.16 tonnes in September and hit 23.5 tonnes in October. The increase in October was mainly on account of festival demand. India imported around 850 tonnes of gold last year, which fuelled the CAD.
Foreign investment
Chidambaram also highlighted the rising foreign direct investments, which have reached $13 billion. The Government is hoping on more FDI in sectors such as pharmaceuticals, telecom, and single/multi-brand retail. Though foreign institutional investment (FII) has turned negative, he hoped that it will turn positive by the year-end. Banks managed to bring in a total of $13.3 billion through Foreign Currency Non Resident-Banking (FCNR-B) accounts and by borrowing against core capital. “I would expect banks to mobilise $20 billion by November 30 (the date till which these windows are open),” Chidambaram added.
Farm sector
With the first estimate of kharif production higher by over 10 per cent compared to last year, Chidambaram felt this will be a good year for agriculture.
“Reservoirs are full and along with a good kharif production, this augurs well for the rabi crops. We expect a bumper harvest this year,” the Minister said.
Industry
Core industry sectors such as cement, steel, fertiliser and electricity grew 8 per cent in September, which Chidambaram termed “satisfactory”. “This growth can be robust in the coming months,” he said.
The overall industrial environment is expected to get a boost with “significant developments” on stalled projects. Currently, 344 projects are being monitored by the project management group (PMG) under the Cabinet Secretariat. “Issues related with 99 projects involving Rs 3.68-lakh crore investment have been resolved by the Cabinet Committee on Investment and the PMG,” he said.
“Everybody says green shoots are here and there. We assure the industry that any new investment proposal will receive full support,” he said.
Challenges
However, he admitted that many challenges remain, the most important being inflation and reviving investments. “But I think there will be green shoots even in investment. We are confident that the measures taken by the RBI and our own measures at maintaining fiscal discipline will eventually bring about a moderation of inflation.”