FM Speak – On 1 year at the Helm of Country’s Finance Affairs

Following is the text of the Statement made by the Union Finance Minister Shri P.Chidambaram while addressing a Press Conference here today:

I complete one year as the Finance Minister today.  I look back to the First Statement made by me on August 6, 2012 and how we overcame, in good measure, the challenges outlined by me in that statement.

An economy is made up of three sectors: agriculture, industry and services.  In 2012-13, the three sectors recorded the following growth rates:

                        Agriculture                                          ..          1.9 percent

                        Industry                                               ..          2.1 percent

                          Of which manufacturing                 ..          1.0 percent

                        Services                                             ..          7.1 percent

                        Total                                                   ..          5.0 percent

As far as agriculture is concerned, the monsoon so far has been very good.  It is 16 percent more than the normal long term average.  In terms of spread, out of 36 meteorological sub-divisions, 18 sub-divisions received excess rainfall and 11 sub-divisions received normal rainfall.  The sown area of major crops is considerably higher for the forthcoming kharif.  The total net sown area is 747.78 lakh hectares in the current kharif season as against 635.05 lakh hectares in the corresponding period last year.  We therefore expect that agriculture will record a growth rate significantly higher than the growth rate of last year.  As I travel around the country, I find that there is a high degree of optimism among farmers.  At the beginning of the year, it was estimated that banks will provide agricultural credit of Rs.7,00,000 crore this year (as against last year™s  level of Rs.5,75,000 crore).  However, having regard to the good monsoon and the increase in the sown area, I am asking banks to gear up to provide agricultural credit in excess of Rs.7,00,000 crore.

As far as the services sector is concerned, the indicators for some services are positive.  For example, the freight traffic of railways grew year-on-year by 4.9 percent in the first quarter of 2013-14.  Exports of services have registered a growth of 13.8 percent in April-May 2013.  Hence, I am confident that the growth rate of services sector will be as good as, if not better than, last year™s rate of growth.

It is the industry sector that presents a mixed picture.  Bankers have told me that there is good demand for credit from commercial real estate, small and medium enterprises, and retail sectors.  Credit growth to micro and small enterprises was very strong in May, 2013 at 21.2 percent on year-on-year basis.  Consumer durables lending grew by 21 percent in May this year.  Housing loans were up by 17.1 percent and commercial real estate lending was up 15.4 percent in May this year, relative to May last year.

However, demand for credit is sluggish from big industry.   Indian industry especially large industrial houses must rediscover the sense of optimism and confidence that I find in the agriculture sector.  I know that they are deterred by the fact that many projects were stalled: we are addressing the problem and have achieved significant success. The Cabinet Committee on Investment has so far cleared 157 projects with the total project value/investment of Rs.1,60,900 crore.  The Project Monitoring Group is tracking large projects and pushing for implementation.  In the case of 20 power projects with an investment of Rs.1,17,814 crore and generating capacity of 23,190 MW, fuel supply agreements will be concluded by 31st August, 2013.  At the instance of the PMG, Ministry of Environment and Forest has granted environmental clearance in the case of five projects with an investment of Rs.9,658 crore.

We must revive investment, and industry must play its part.  Industrial houses appear to be confident when they decide to invest abroad.  The same confidence must be exhibited in order to invest in India.  The price of credit is indeed high, but it is not so dauntingly high that it should hold back investment.  The RBI™s policy announced yesterday hints at easing of interest rates, once the rupee stabilizes and there is reduced volatility in the currency market.  Ample funds are available with banks.  Bankers have assured me that the credit needs of industry will be fully met.  If anyone in industry finds that his credit needs are not being met, he may come to me and I shall put him in touch with the banks.  I think it is a truism that it is only domestic investment that will bring in its wake foreign investment.

Last year, the concern about fiscal deficit was upper most in everyone™s mind.  I promised to tackle the fiscal deficit and bring the economy back on the path of fiscal consolidation.  We have succeeded in large measure and the fiscal deficit for 2012-13 was contained at 4.9 percent as against the earlier target of 5.3 percent.  The Current Account Deficit was also a problem last year.  Nevertheless, we not only fully and safely financed the current account deficit of about USD 88 billion, but also added USD 3.8 billion to the reserves.  This year, again, I promise that we will tackle both deficits.  The target for fiscal deficit is 4.8 percent: it is a red line and it will not be breached. As far as the current account deficit is concerned, thanks to the steps taken so far and some more steps that are on the anvil, we expect that we would be able to fully finance the current account deficit this year too and we will not be obliged to draw down on the reserves.

As you are aware, we have taken some strong measures on gold imports.  In June, 2013, gold imports were down to 31 MT and upto July 25, 2013, it was 45 MT.  We hope to contain gold imports at a level well below last year™s total imports of 845 MT and save a considerable amount of foreign exchange which will have a positive impact on the current account deficit.

A number of steps are under way to augment exports.  There are some signs of export pick up:  for instance, in services, exports on a net basis grew by 35.66 percent in April-May, 2013.  My colleague, the Commerce Minister, has announced a number of measures.  I have offered him full support and provided, today, additional funds of Rs.2000 crore.  This will include increasing the interest subvention from 2 percent to 3 percent on certain exports.

Simultaneously, we are looking at some compression in non-oil and non-gold imports, especially of non-essential goods.

We have done our sums on FDI and FII flows.  Even without additional measures, we estimate that the inflows will be well above USD 80 billion and this will be sufficient to finance, comfortably, the current account deficit which will be contained at a level below last year™s level.

We have also decided to exercise some options to increase the inflows and add to the stable financing of the current account deficit. The Government is actively considering significant liberalisation of the FDI policy which would further increase long term foreign investment.  We will ask some public sector companies to raise funds abroad.  We have also decided on some measures to attract longer term NRI funds.  Talks are under way with long term investors such as Sovereign Wealth Funds and Pension Funds.  In consultation with the RBI, we propose to liberalise longer term ECBs in a sustainable way.  We are also actively considering other measures.  Taken together, we are confident that we can ensure stable sources of additional financing for the current account deficit.

When the global economy is challenged, the Indian economy will also face challenges.  It is the challenges that should bring out the best in the people, especially our farmers, manufacturers and service providers.  I am an eternal optimist.  Just as we consolidated the Indian economy in 2012-13, I am confident that we will take the Indian economy one rung higher in 2013-14.  We are looking forward to a growth rate of between 5.5 and 6 percent and we will take all measures to achieve that goal.

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