Chidambaram promises reforms to bolster Indian economy

Finance Minister P. Chidambaram on Monday said that the Government will soon announce measures to contain fiscal deficit, check rampant inflation and boost sagging investor confidence. Chidambaram also suggested that he wanted interest rates to drop, prompting bond yields to decline. Bond yields fell few basis points after his comments on interest rates. India's fiscal deficit for FY12 was 5.76% of GDP, and many economists warn that the goal to trim it to 5.1% of GDP for this fiscal year is optimistic. For the April-June 2012 period, the budget shortfall rose to Rs. 1.9 trillion, or 37.1% of the full fiscal year 2012/13 target. "Since investment is an act of faith, we must remove any apprehension or distrust in the minds of investors," Chidambaram told reporters in his first media interaction since becoming Union Finance Minister on July 31. Clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution and an independent judiciary will provide great assurance to investors, he said. "We are conscious that current interest rates are high. High interest rates inhibit the investor and are a burden on every class of borrowers," Chidambaram said. "Sometimes it is necessary to take carefully calibrated risks in order to stimulate investment and to ease the burden on consumers. We will take appropriate steps in this regard," he said. Chidambaram said that the Government hopes to bring investment back up to 38% of GDP. It was 32% of GDP in the year ended March 2012. "Uppermost in my mind is the duty to regain the confidence of all stakeholders. Obviously, where necessary, our policies have to be modified or fine-tuned in order to meet the expectations of different stakeholders," he said. The burden of fiscal correction must be shared, fairly and equitably, by different classes of stakeholders, Chidambaram said, adding that the poor must be protected and others must bear fair share of the burden. He explained that adjustments must be made both on both on the revenue side and on the expenditure side. The Union Finance Ministry has formed an expert group comprising Vijay Kelkar, Indira Rajaraman and Sanjiv Mishra to assist in formulating the path of fiscal consolidation. The group will submit its report within few weeks.

FM confident of bringing economy back on desired track

FM strikes right notes; Now it's time for action: Nomura

Govt to review FY13 fiscal deficit target after mid-year review

The Government on Thursday said that it will review its fiscal deficit target of 5.1% of GDP for the current fiscal year in its mid-year review of the economy. The Centre aims to bring down the budget shortfall - the gap between expenditure and revenue collection - from 5.9% of GDP in FY12 to 5.1% or about Rs. 5.13 lakh crore in the financial year ending in March 2013. "The fiscal deficit target for the current financial year will be reassessed after mid-year review depending on the pace of expenditure and resource position of the government," Finance Minister P. Chidambaram said in Rajya Sabha. He said that the reduction in fiscal deficit will be achieved through a mix of rationalisation in total expenditure as a percentage of GDP and improvement in gross tax revenues. The Government has taken several steps, including 10% mandatory cut on non-plan expenditure, and economic measures like rationalisation of expenditure and optimisation of available resources. Also, the Government endeavours to restrict expenditure on central subsidies. "Similar steps are expected to be continued in the coming years to contain the fiscal deficit," Chidambaram said. CRISIL Research has increased its fiscal deficit forecast to 6.2% of GDP from the earlier estimate of 5.8% of GDP.  Late last month, the Reserve Bank of India (RBI) cut its GDP growth forecast for FY13 to 6.5% from the earlier projection of 7%, citing high fiscal deficit, sticky inflation and a possible drought. In the Union Budget announced in February, the Government had targeted a GDP growth of 7.6%. India's GDP in FY12 declined to 6.5%, which was 2% lower than FY08.

Citi, CLSA & GS cut India's GDP growth forecast

Citigroup, CLSA and Goldman Sachs have cut their outlook on India's GDP growth for FY13 to 5.4%, 5.5% and 5.7%, respectively, citing weak southwest monsoon and other lingering headwinds such as sticky inflation, high borrowing costs, widening twin deficits and policy inertia. Ongoing political gridlock, recent power outages, fragile exports and falling domestic consumption will take a toll on the Indian economy, Citigroup economist Rohini Malkani said in a note. If drought conditions worsen, GDP growth for FY13 could fall to 4.9%, she said. The Reserve Bank of India (RBI) has scaled back its FY13 GDP projection to 6.5% from the earlier estimate of 7.3%. CLSA in its report said that it expects growth in the agriculture sector to be stagnant compared with an average growth of 3% in the past few years. "Unfortunately, the scope for counter-cyclical fiscal and monetary support today is almost non-existent," said Rajeev Malik, Economist at CLSA. On Tuesday, domestic rating agency CRISIL slashed its FY13 GDP growth forecast to 5.5%, just two months after pruning its prediction to 6.5% from 7%. It said that a weakening eurozone outlook along with poor rains contributed to the latest cut. Goldman Sachs has revised its GDP growth forecast for FY13 to 5.7% from 6.6% earlier, citing a weak monsoon, downbeat investment outlook and continued global uncertainty. The Wall Street giant added that a weaker monsoon will likely exacerbate the hit to business sentiment, which had already worsened. The latter is largely due to the lack of significant policy reforms, and the challenging global environment.  A weak monsoon will impact rural consumption demand too, Goldman Sachs said. "We are also revising our GDP growth forecast for FY14 down to 7% from 7.8% previously, due to a more tepid recovery in both consumption and investment demand, in part due to less monetary easing, and in part due to continued policy stasis," Goldman Sachs said.

Moody's Analytics cuts India's GDP growth forecast,

CRISIL cuts India's FY13 GDP growth forecast to 5.5%

Industrial output surprisingly contracts in June

India's industrial production unexpectedly contracted in the month of June, undermined by dwindling investments in a sharply slowing economy, government data showed on Thursday.  The combined output of Factories, Mines and Power Utilities, as measured by the index of industrial production (IIP), shrank by 1.8% in June 2012 as against a revised 2.5% expansion in May 2012, the Commerce Ministry said. The IIP had expanded by an impressive 9.5% in June 2011. Economists had forecast an increase of ~1% in June 2012. The cumulative growth rate in IIP for the period April-June 2012-13 stands at (-)0.1% versus a growth of 6.9% in the corresponding period of the previous fiscal year. The IIP for June 2012 stands at 168.3 as against 170.4 in May 2012. It was at 171.4 in June 2011. The monthly growth rates of Mining, Manufacturing and Electricity sectors for June 2012 stood at 0.6%, (-)3.2% and 8.8%, respectively. As per "use-based" classification there has been negative growth in Capital Goods (-27.9%) while positive growth has been achieved in Basic Goods (4.1%) and Intermediate Goods (1.6%). Consumer Durables output stood at 9.1% in June this year while that of Consumer Non-durables was at (-1.0%) and Consumer Goods at 3.5%...Read More

CII Statement on IIP, Industrial output to turn positive, but remain weak: Nomura

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