Ball in government's court, says Chidambaram on growth revival

Finance Minister P. Chidambaram acknowledged that the "ball was in the government's court" to revive growth, and pledged to present a "responsible" Budget for the fiscal year 2013-14.

Welcoming the Reserve Bank of India's decision to cut the repo rate and cash reserve ratio by 0.25 percent, Mr Chidambaram told Reuters Television, "I welcome the decision (RBI Governor D. Subbarao) has taken. Going forward, if inflation moderates, I think he will do more."

The RBI cut interest rates -- to lower the cost of borrowing and release an additional Rs 18,000 crore into the banking system -- yesterday for the first time in nine months, but struck a cautious note on further easing as it waits to see how the government's upcoming Budget aims to trim a bloated fiscal deficit.

The RBI revised its GDP growth forecast for Asia's third-largest economy to 5.5 percent from 5.8 percent for the fiscal year ending in March, a sharp come down for an economy that was running at near double-digit growth before the Lehman Brothers crisis. Though respectable by other standards, the growth rate is too slow for an economy trying to support hundreds of millions of poor people, and is a worry for the ruling Congress party as it heads towards an election next year.

"It is now critical to arrest the loss of growth momentum without endangering external stability," the RBI said in its policy review. But it went on to list constraints, notably worryingly high current account and fiscal deficits, and the risk that inflation could flare again.

All eyes will now fall on Mr Chidambaram's annual budget statement due in late February, to see how the government plans to put its finances in order.

Mr Chidambaram has promised a 'responsible' budget, and assured overseas investors that India is committed to its reforms agenda, which the government kicked off in the second half of 2012.

The Finance Minister is on a four-country roadshow to drum up foreign investment, as he struggles to revive economic growth and lure investment while trying to trim the fiscal deficit - a tough job given a general election looms in 2014.

Addressing global investors in the fourth leg of his overseas roadshows, Mr Chidambaram said the government will implement many of the decisions and changes in the run-up to the polls.

In their meetings with Mr Chidambaram, overseas investors expressed reservations over India's political stability and the government's capacity to take reforms forward. They pointed out that elections are due in 2014 and "will falter in the run-up to the elections".

"I assured them that the polls are 15 months away, and that the Budget that will be presented in February will be a responsible Budget that we will implement many of the decisions and changes in the run-up to the polls," he told reporters after the meeting. He said there is no reason for the investors to doubt that "in the run-up to the polls, we will be anything but responsible".

The Finance Minister, who is due to present the Union Budget for the 2013-14 fiscal year on February 28, is under pressure from the ruling Congress party to be generous to voters to avoid triggering a backlash in the election. But the minister said the government and the Congress leadership were "on the same page".

"It is I who has done the math, the deficit will remain below 5.3 per cent this year, next year it will be below 4.8 per cent. I am not going to cross these red lines. The budget will be a responsible budget."

Asked if he was planning to levy extra taxes on India's super-rich in the budget as well as taxes on transactions and commodities, Mr Chidambaram said, "I have not made up my mind. All these views are under consideration, I have not taken a view yet."

The Finance Minister said if one went by the number of people attending the conferences and the questions they asked, it showed there was enormous interest in and goodwill for India.

Both in Frankfurt and London, investors wanted India to recapture what it had achieved between 2004 and 2009.

"I sincerely hope that these roadshows have helped to answer their questions, clarified their doubts and stimulate interest in India," he said.

With inputs from PTI and Reuters