Caught in a cesspool of negative news—very low factory output numbers for April, a free-falling rupee and the stock market, stubborn retail inflation and a sudden tapering off of the foreign fund tap among others—had finance minister P Chidambaram talking up the markets twice yesterday.
But is assurances to accelerate the investment process and kicking off a slew of reforms, especially foreign direct invest, had no impact at all as the markets simply ignored him words and attempt at talking up the sentiment.The Sensex shed 214 points to close at 18,827, and the rupee lost yet another 19 paise to 57.98 to the greenback. The industrial production numbers for April stood at poor 2.3 percent, but after two revisions.The only good news in recent days has been the upgrade of the sovereign rating outlook to positive by Fitch Ratings, but retained the rating at BBB-.
It can be noted that since the beginning of January, the Sensex is down nearly 4.3 percent, despite the fact that FIIs have pumped in a whopping $15 billion into the markets—both debt and equities– and since the third week of May they have pulled out only $3.27 billion from debt markers. The rupee, the worst affected major currency lost nearly 7 percent sinceMay 4.5 per cent since January. In a bid to accelerate the process of economic reforms and spur investment, the governmentwill soon decide on coal and gas pricing and review FDI cap in various sectors including defence, Chidambaram said. He held two press conferences yesterday.He said the government will also give a push to 30-40 of the 250 stalled private sector projects that can quickly take off the ground in yet another attempt to boost growth.
With the rupee taking a knock on account of high current account deficit, Chidambaram said while he shared the concern, there is no need to panic. He hoped authorities will takemeasures to ensure that there is no volatility.However, he ruled out any further increase in duty on gold imports while parrying questions on issuing NRI bonds to attract foreign investment.The minister also said banks should pass on rate cut implemented by the Reserve Bank to the tune of 1.30 per cent for which he will be meeting chairmen of public sector banks soon. Banks have passed rate cut to the tune of 0.3 per cent only.
"I could not agree with Fitch more. There are a number of decisions which I expect to be taken in the next few days and few weeks. I would think the following issues will be resolved before the end of June itself."Firstly on coal pricing and coal allocation to power plants. Secondly gas pricing. Thirdly on FDI limit and fourthly on a number of steps that Sebi is contemplating based on Chandrasekhar committee report which was submitted yesterday," he said. Welcoming the Chandrasekhar panel report, Chidambaram said Sebi board will take a view on it on June 25. "We think the report is extremely positive and they deserved to be accepted, of course, after discussion," he said.
In its report, the committee has asked for simplifying the rules for foreign institutional investors entering the stock markets. On the falling rupee, he said, what is happening is not unusual to our country. Countries with large CAD including SouthAfrica, Brazil and Mexico have taken hits on their currencies. "But that does not mean, the rupee will continue to depreciate. The rupee will find its level. We are concerned aboutthe volatility. I think steps are being taken to ensure that there is no volatility. "The rupee will find its level and it is quite possible that it will regain some of the losses suffered in the last few days. I don't think we need to panic about what is happening in the rupee. It does put pressure on inflation, subsidy bill, especially on imported commodities." he said.
On FDI liberalisation, Chidambaram said things were in the last lap. The report of the committee headed economic affairs secretary Arvind Mayaram will be available on Monday or Tuesday.After that he and commerce minister Anand Sharma would meet and take the issue to the Prime Minister."We are looking at every sector. The principle is very simple. Does the FDI cap serve any purpose today? If it does, we will keep that gap. If not, the cap should be either relaxed or removed. That is the mandate of the committee and it is in the final stages. We are looking at all sectors including defence."
Chidambaram said that government will not compress expenditure this year and whatever has been provided to ministries will be made available to them. They are being encouraged to accelerate spending.He said in the first month of April both Plan and non-Plan expenditure have been as per the target. He also said the fiscal deficit target of 4.8 per cent for 2013-14, which appeared too ambitious, is imminently achievable.
