New Delhi, Aug. 12: The government announced a bunch of measures to pull in dollars to push up the rupee on a day signals emerging from the economy were mixed.
The bad news was a contraction of industrial production by 2.2 per cent in June, the second straight monthly drop, brought on by a decline in the manufacture of capital goods and poor performance by the manufacturing, mining and power sectors.
An export growth of 11.64 per cent in July, the highest in nearly two years, lifted the gloom somewhat while imports dipped 6.2 per cent, numbers that should make P. Chidambaram happy.
Another bright spot was a marginal decline in retail inflation to 9.64 per cent in July from 9.87 per cent in the preceding month as prices of cereals, pulses, fruits and sugar softened. Lower inflation is a signal for the Reserve Bank to consider a cut in interest rates that the government wants to spur industrial growth.
One of the major tasks before the finance minister is to contain the widening current account deficit (CAD) — imports over exports plus remittances and transfers from abroad.
Hoping to get a grip on the out-of-control CAD and falling rupee, the finance minister announced steps to fetch $11 billion this financial year.
“CAD is a problem (but) we have solutions. We will implement the solution (and) there is no room for panic,” he said.
Listing the steps, Chidambaram added that permission would be given to government financial institutions like the IRFC, PFC and IIFC to raise $4 billion through quasi-sovereign bonds for infrastructure development.
Public sector oil companies will be allowed to make additional external commercial borrowings of $4 billion.
He expected easier norms for external commercial borrowings and liberalisation of interest rates offered on foreign currency non-resident accounts to net another $3 billion.
Further measures are on the way in the form of higher duties on imports of gold, silver and some non-essential goods. The notifications will be placed in Parliament tomorrow.
With all these measures, Chidambaram expected to contain the CAD at $70 billion or 3.7 per cent of the GDP.
“CAD is as much a red line as fiscal deficit. If we can contain CAD, sentiment about currency market and rupee will significantly improve,” he said.
The minister expected gold imports in the current fiscal to come down to 850 tonnes from 950 tonnes in 2012-13.
“We may save $4 billion in gold import and $1.5 billion in oil import,” he said.
Oil consumption growth shrank to 0.7 per cent during April-June 2013 from 10.3 per cent during the corresponding period of the previous year.