This story is from November 2, 2012

Act now to stave off 'junk grade' tag, Chidambaram warns Cabinet

Chidambaram, who made a presentation at the Cabinet meeting, made a strong pitch for attracting foreign investment, both FDI and FII.
Act now to stave off 'junk grade' tag, Chidambaram warns Cabinet
NEW DELHI: Finance minister P Chidambaram has flashed the "danger ahead" sign before his ministerial colleagues, asking them to immediately take belt tightening measures to stave off a fiscal crisis which could turn India into junk grade on creditworthiness.
At Thursday’s meeting of PM Manmohan Singh’s Council of Ministers, the first after the reshuffle, Chidambaram bluntly told his colleagues that the economy was in dire straits and the only way out was for the government to aggressively embark upon fiscal consolidation through controlling expenditure, especially subsidies, and by raising more resources through disinvestment in the remaining five months of the financial year.

In return, he promised a "good budget" in 2013, the last full-fledged financial exercise before the 2014 Lok Sabha polls.
The finance minister’s caution was at odds with the apparent satisfaction in the government on the flurry of reform measures on his watch and pulled against the hope in certain quarters that his fresh tenure would soon make up for lost opportunities over the past two years. The gloomy picture he drew up went further than what the government had so far admitted about the health of Asia’s third largest economy.
The note of urgency came against the backdrop of the government’s inability to persuade the Reserve Bank to pare interest rates to rev up growth that has languished below 5.5% for two straight quarters.
Chidambaram, who made a presentation at the meeting, made a strong pitch for attracting foreign investment, both FDI and FII. "Foreign investment is not an option, but an absolute necessity," a minister quoted Chidambaram as telling his audience after the PM handed over the floor to him.

While acknowledging that the government was "working against the political calendar", Singh too flagged the fiscal concerns. "Of particular concern is the fiscal deficit, which is too high and acts as a deterrent for domestic and foreign investment. These issues have a rippling effect across the economy," he said.
In his address, which struck many for its extraordinary candour, Chidambaram said he was having to meet investors to pacify their concerns and to impress upon them that India remained an investment option. However, he also said the investments were hobbled by problems relating to land acquisition, environmental clearance and local issues.
The bluntspeak was interpreted by many as aimed at the Congress leadership which has been insisting on increasing entitlements when the subsidy bill is already stretched. Even the references to the land acquisition bill and green clearances were seen through the same prism, as it is the Congress leadership that has sought to tighten the procedure for land acquisition and made the process of environmental clearances very stringent.
Many wondered whether it was Chidambaram’s way of conditioning the party to the need for reining in expenditure and to scale down its expectation for bloated programmes in the lead-up to the elections.
Chidambaram said he did not fear a repeat of the 1991 crisis when India was left with forex reserves enough to cover its import bill for a couple of weeks, but warned that things could turn bleak if the government did not get its act together. All departments must show that they can perform, he said.
With exports in contraction for several months now, the prognosis on the external sector is weak and the finance ministry has projected the current account deficit at $70 billion for this fiscal.
Chidambaram ruled out the demands for a hike in allocation by ministries such as fertilizers, saying the government had no head room left. He said the projection of 5.1% fiscal deficit was based on higher GDP growth. But with the RBI slashing the growth estimate, there is no way the government could let the fiscal deficit go beyond 5.3%. Even that would mean an additional borrowing of Rs 25,000 crore.
The minister also held out the promise that prudence and rapid ramp-up of infrastructure now could help the country go back to the high-growth trajectory, clocking upwards of 8%. In fact, Chidambaram emphasized that a growth rate of 8% plus had been the norm for six of the eight years that UPA had been in office. On the flip side, profligacy could land India in junk grade.
End of Article
FOLLOW US ON SOCIAL MEDIA