Higher current account deficit, slide in Rupee factors, says PM.
By R Chandrasekaran
CHENNAI: The Indian Prime Minister, Manmohan Singh, expects the Indian economy to perform below than its own previous expectations. This is probably the first time that the government is admitting that it will not be able to meet its earlier economic predictions of 6.5 percent.
All along, Finance minister P. Chidambaram and the Deputy Chairman of the Planning Commission Montek Singh Ahluwalia have been maintaining that India could still deliver 6.5 percent economic growth despite constraints and challenges.
Speaking at the Associated Chambers of Commerce and Industry’s (ASSOCHAM) annual meet, the prime minister also admitted that higher current account deficit (CAD) and the sliding Indian currency have impacted the macro economic conditions gravely. However, he said, “I can assure you that we are committed to bringing down the CAD and for that both demand and supply side of the issues have to be addressed.”
Singh has assured the Indian business community that his government will not remain silent and will take all possible steps to revive the economy. As part of the initiatives, the United Progressive Alliance (UPA) is also ready to unveil more reforms including increasing or opening up of the different sectors to the foreign direct investment (FDI).
While defending the Reserve Bank of India’s (RBI) move to protect the weakening Rupee, which could impact economic growth, the prime minister disclosed that these measures were necessary to stabilize the market and is not meant to signal higher long-term interest rates regime. He also indicated that the central bank will consider reversing these moves once the current situation allows them to do so.
The prime minister has not spared his critics, blaming them for taking up one bad year as benchmark for his government’s performance since it has delivered an average growth pace of 8.2 percent during its eight year stint compared to 5.7 percent in the preceding eight year period.
Though the government is confident of reviving the economy to higher growth trajectory, the fact that there were few takers from overseas to enter the retail segment indicates that investors’ may prefer to wait until the elections for parliament is held next year as they don’t seem to be wanting to fish in troubled waters in case a change in government takes place. The tightening of money policy could also mean that there will be less demand to stimulate growth. These things could possibly drive India to suffer another year of lower growth.