The FM Is Worried And It Shows

Looks like, the current financial situation has put the government in a solid fix. Union finance minister P Chidambram is trying to use every opportunity that comes his way to contain the CAD. Voicing concern over the extent of the current account deficit (CAD) and its financing, he urged that the only way the country can contain the CAD is by increasing domestic oil and coal production as we are hugely dependent upon their imports. Addressing a meeting of the Parliamentary Consultative Committee of Ministry of finance in New Delhi, Chidambaram said, in order to increase our production, we must get our policies and priorities right as long term measures.

On the CAD front the FM said that it is very important to finance CAD than to draw from the reserve and till now government has been able to do so despite all odds. He also said that we had in fact added around USD 3 billion to the forex reserves in 2012-13. He expressed confidence that this year too, CAD will be financed without dipping into reserves. The Government also knows the importance of speeding up the reforms process as more than anything else it will play a great confidence booster for industries. Reiterating his earlier statement on Foreign Direct Investment (FDI), he said that the government is looking at FDI caps to see if they are indeed serving the purpose. Otherwise the caps could be revisited. Also to increase the inflows he said that government is proactively working towards operationalization of 215 stalled projects involving about Rs. 7 lakh crore, with a view to give a push to the production activity in the country.

Ministry hold global factor responsible for the current crisis but sounded confident in India’s ability to attract foreign funds. Chidambram said that as the world economies are in recession, we cannot do much on the external factors. All European economies except Germany are in recession and so is the case with Japan and other developing economies. Only US economy is showing some signs of revival.  However, India continues to remain a desired destination for FDI and FII, he added.

In terms of suggestions for increasing foreign inflows some of the committee members suggested that foreign investors’ confidence in the Indian economy needs to be restored to ensure larger inflows of FDI and FII. It was also suggested that domestic production of oil and coal should be increased by ensuring that allocated blocks for oil exploration and coal mining start production at the earliest. Committee also lauded the Finance Minister’s announcements in the recent past including his appeal to the people, to check import and consumption of gold.