Three days after the Budget, Finance Minister P Chidambaram today outlined his agenda for action: Get public sector and private companies to invest, ask foreign investors to pump money into India, and address the widening current account deficit (CAD).
In the short run, he said the government’s priority was to get foreign investments to fund the CAD. In the medium term, it was to increase exports to pay for the import bill.
At a customary post-Budget interaction with industry chambers and netizens on social media platform Google+ Hangout, Chidambaram said he would visit Mumbai, Chennai, Kolkata, Bangalore, Hyderabad and the National Capital Region to urge companies for capital expenditure (capex). He would also visit the US, Japan, Canada and West Asia to woo foreign investors.
Saying the CAD was a bigger worry than the fiscal deficit, Chidambaram said until he raised the issue in the Budget, the matter was seldom raised by the government and industrialists. “CAD has not been in focus till recently. It is a number in the books of RBI (the Reserve Bank of India) and in the papers of the Department of Economic Affairs. We have never debated CAD in the manner we debated the fiscal deficit or the revenue deficit,” he said.
India’s CAD reached an all-time high of 4.2 per cent of gross domestic product (GDP) in 2011-12 and was set to be higher in the current financial year. In the first half of the current financial year, it was 4.6 per cent, against four per cent in the corresponding period of 2011-12.
The minister said export of manufactured products and services was the way to pay for rising imports. However, he said, his job in the immediate future was to ensure foreign inflows were adequate and robust.
The Securities and Exchange Board of India (Sebi) will convene a meeting of foreign institutional investors (FIIs) to address their outstanding concerns, he said. Sebi, the Insurance Regulatory and Development Authority and RBI will take follow-up action on the Budget announcements, he said.
The finance ministry was examining rationalising the withholding tax on foreign investors in various instruments, doing away with sub-limits on FII debt investments and if the sub-limits could be made fungible, he said.
Wondering why India Inc was not investing, Chidambaram said industry was better placed to tell him the reasons. “PSUs (public sector undertakings) are sitting on piles of cash, private business houses are also sitting on piles of cash. I am in constant touch with bankers. While some enquiries have begun to come to bankers, I am told there is not a flood of enquiries.”
The finance minister said he would hold PSU chairmen and managing directors accountable to their capex plans for the next financial year. He also said he would meet business houses to ask them about capex plans.
Chidambaram reminded the chambers that the Budget had proposed to restore the investment allowance to push up the investment rate. In 2007-08, a year before the global financial crisis, the investment rate in India stood at 38.1 per cent of the GDP. It stood at just 34.7 per cent in 2011-12 and was projected to rise to 35.3 per cent in the current financial year.
The minister disclosed he had sent a note to Prime Minister Manmohan Singh for inter-ministerial meetings in some areas.
Enough signals have been given regarding foreign investment, such as reducing withholding tax on infrastructure bonds. “In the coming days, indeed we will examine other concerns of foreign investors, including rationalising withholding tax treatment on a variety of instruments,” Chidambaram said.
SEBI Chairman U K Sinha has informed the minister that he will shortly convene a meeting with FIIs to discuss outstanding issues. “We are also engaged with foreign investors which include FIIs, pension funds and sovereign wealth funds to share with them emerging opportunities in investing in India.”