It's growth below potential

No Big Bang! Chidambaram paints gloomy picture

Presenting his eighth budget  was also an exercise in being frank on the state of the economy for Finance Minister P Chidambaram as he kept Lok Sabha members and the audience glued to the TV sets through  a maze of economic jargons.

 The FM painted a gloomy picture of the country’s economy even as he began his over 100-minute budget speech referring to the global economic slowdown from 3.9 percent in 2011 to 3.2 percent in 2012. “India is part of the global economy..…we are not unaffected by what happens in the rest of the world and our economy too has slowed after 2010-11.”

 Referring to the divergent growth forecasts presented by the Central Statistical Organisation of a lowly 5 per cent and 5.5 per cent by RBI, he remarked, “Whatever may be the final estimate, it will be below India’s potential growth rate of 8 per cent. Getting back to that growth rate is the challenge that faces the country. Let me say, however, there is no reason for gloom or pessimism.”

Noting that the UPA government had achieved 8 per cent growth earlier, Chidambaram said: “Achieving high growth, therefore, is not a novelty or beyond our capacity. We have done it before and we can do it again.”

 Referring to fiscal deficit, current account deficit and inflation, the FM said: “At present, the economic space is constrained because of high fiscal deficit; reliance on foreign inflows to finance the current account deficit; lower savings and lower investment; a tight monetary policy to contain inflation; and strong external headwinds.”

 Further slipping into the economy, he added, “Red lines were drawn for the fiscal deficit at 5.3 per cent of GDP this year and 4.8 per cent of GDP in 2013-14. I know there is a lot of scepticism. My greater worry is the current account deficit (CAD).”

“The CAD continues to be high mainly because of our excessive dependence on oil imports, the high volume of coal imports, our passion for gold, and the slow down in exports.”

He added that this year, and perhaps next year too, the government has to find over $75 billion to finance the CAD.

“There are only three ways before us: FDI, foreign institutional investment or External Commercial Borrowing. That is why I have been at pains to state over and over again that India, at the present juncture, does not have the choice between welcoming and spurning foreign investment.”

 On inflation, the budget said, “Looming large over our efforts to stimulate growth is inflation. Some inflation is imported. Supply demand mismatch, for example in oilseeds and pulses, also pushes up inflation.”

“Aggregate demand is another cause of inflation. The battle against inflation must be fought on all fronts. It is food inflation that is worrying, and we shall take all possible steps to augment the supply side to meet the growing demand for food items.”

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