India’s finance minister said the
nation needs lower interest rates to bolster economic growth and
sought a stronger exchange rate as he prepares to deepen the
government’s economic-reform agenda.
“Interest rates must come down and if the fiscal policy steps that we are taking encourage the central bank to take monetary policy action which will result in lower interest rates, I think that will be good,” Palaniappan Chidambaram, 67, said in an interview with Bloomberg Television in Tokyo yesterday.
India has revamped economic policy since Chidambaram became finance minister on July 31, opening up to more investment from abroad and raising subsidized diesel prices to tackle a budget deficit. The push snapped months of gridlock over how to revive the economy, helping the rupee rebound from a record low. Chidambaram said he plans further changes in capital markets, insurance, banking and infrastructure in the next few weeks.
“I think the rupee must appreciate a little more,” he said. “It has appreciated about 5 or 6 percent in the last few weeks, but I think the rupee must find a reasonable level, its true level.”
The rupee has surged more than 5 percent against the dollar in the past three months, the most among major Asian currencies, buoyed by the biggest opening of the economy to overseas companies in a decade.
Inflation hasn’t been tamed yet and supply constraints are adding to price pressures, Chidambaram said. A further rise in the rupee will help to curb the increase in costs, he said. The central bank can’t be expected to bear the burden of containing inflation by itself, he said.
“When fiscal policy and monetary policy act in tandem and supply improves and the rupee appreciates a little more, I think we will be able to tame inflation,” he said.
Governor Duvvuri Subbarao left the benchmark repurchase rate unchanged at 8 percent for a third meeting in September, after cutting it from 8.5 percent in April.
The Reserve Bank has signaled that curbing the fiscal deficit may boost scope to join emerging nations from South Korea to Brazil in extending rate reductions this year.
Prime Minister Manmohan Singh’s government announced the first increase in diesel prices in more than a year on Sept. 13, after Chidambaram pledged to contain a fiscal shortfall that has put the nation’s investment-grade credit rating in jeopardy.
The administration opened industries including retail and aviation to more foreign investment the next day, and this month decided to seek parliamentary approval for more overseas participation in the insurance and pension businesses.
The burst of changes, which snapped months of political gridlock over how to rejuvenate the economy, cost the ruling Congress-party led coalition its majority in both houses of parliament after a key ally withdrew support.
Chidambaram said he’s “absolutely certain” that India’s credit-rating won’t be downgraded, and added the budget for the year through March 2014 would be neither populist nor austere.
“We must have a budget that emphasizes fiscal consolidation and incentivizes savings, promotes investment and cuts out wasteful expenditure,” he said, adding key social welfare programs will be fully protected.
India’s budget deficit is the widest among major emerging nations as slower growth hurts tax receipts and subsidies fan spending, imperiling the government’s goal of narrowing the gap to 5.1 percent of gross domestic product in the 12 months through March 2013, from 5.8 percent the previous fiscal year.
Indian economic growth may weaken to a decade-low of 4.9 percent in 2012 after investment stalled, the International Monetary Fund said this week. The outlook for Asia’s third- largest economy is unusually uncertain, it said.
To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net; Shamim Adam in Singapore at sadam2@bloomberg.net; Aika Nanao in Tokyo at ananao@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
“Interest rates must come down and if the fiscal policy steps that we are taking encourage the central bank to take monetary policy action which will result in lower interest rates, I think that will be good,” Palaniappan Chidambaram, 67, said in an interview with Bloomberg Television in Tokyo yesterday.
India has revamped economic policy since Chidambaram became finance minister on July 31, opening up to more investment from abroad and raising subsidized diesel prices to tackle a budget deficit. The push snapped months of gridlock over how to revive the economy, helping the rupee rebound from a record low. Chidambaram said he plans further changes in capital markets, insurance, banking and infrastructure in the next few weeks.
“I think the rupee must appreciate a little more,” he said. “It has appreciated about 5 or 6 percent in the last few weeks, but I think the rupee must find a reasonable level, its true level.”
The rupee has surged more than 5 percent against the dollar in the past three months, the most among major Asian currencies, buoyed by the biggest opening of the economy to overseas companies in a decade.
Price Pressures
Consumer-price inflation slowed to a six-month low of 9.73 percent in September, a report showed yesterday, while remaining the fastest in a basket of 17 Asia-Pacific economies tracked by Bloomberg, and almost twice as high as the Reserve Bank of India’s comfort level of about 5 percent.Inflation hasn’t been tamed yet and supply constraints are adding to price pressures, Chidambaram said. A further rise in the rupee will help to curb the increase in costs, he said. The central bank can’t be expected to bear the burden of containing inflation by itself, he said.
“When fiscal policy and monetary policy act in tandem and supply improves and the rupee appreciates a little more, I think we will be able to tame inflation,” he said.
Governor Duvvuri Subbarao left the benchmark repurchase rate unchanged at 8 percent for a third meeting in September, after cutting it from 8.5 percent in April.
The Reserve Bank has signaled that curbing the fiscal deficit may boost scope to join emerging nations from South Korea to Brazil in extending rate reductions this year.
‘Crucial Link’
“The crucial link as the finance minister mentioned is that inflation should come down and that is not happening,” said Prasanna Ananthasubramanian, an economist at ICICI Securities Primary Dealership Ltd. in Mumbai. “They will not touch the repo rate but will ensure comfortable liquidity so that banks have an incentive to expand credit.”Prime Minister Manmohan Singh’s government announced the first increase in diesel prices in more than a year on Sept. 13, after Chidambaram pledged to contain a fiscal shortfall that has put the nation’s investment-grade credit rating in jeopardy.
The administration opened industries including retail and aviation to more foreign investment the next day, and this month decided to seek parliamentary approval for more overseas participation in the insurance and pension businesses.
The burst of changes, which snapped months of political gridlock over how to rejuvenate the economy, cost the ruling Congress-party led coalition its majority in both houses of parliament after a key ally withdrew support.
Budget Outlook
Singh is gambling that the long-delayed opening measures will revive economic growth in time to salvage Congress’s fortunes before a general election due by May 2014.Chidambaram said he’s “absolutely certain” that India’s credit-rating won’t be downgraded, and added the budget for the year through March 2014 would be neither populist nor austere.
“We must have a budget that emphasizes fiscal consolidation and incentivizes savings, promotes investment and cuts out wasteful expenditure,” he said, adding key social welfare programs will be fully protected.
India’s budget deficit is the widest among major emerging nations as slower growth hurts tax receipts and subsidies fan spending, imperiling the government’s goal of narrowing the gap to 5.1 percent of gross domestic product in the 12 months through March 2013, from 5.8 percent the previous fiscal year.
Indian economic growth may weaken to a decade-low of 4.9 percent in 2012 after investment stalled, the International Monetary Fund said this week. The outlook for Asia’s third- largest economy is unusually uncertain, it said.
To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net; Shamim Adam in Singapore at sadam2@bloomberg.net; Aika Nanao in Tokyo at ananao@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
Posts
No comments:
Post a Comment