Chidambaram doesn't see sharp rupee rise in 2008
The rupee is unlikely to appreciate as sharply this year as last year and the economy will grow close to 9%, says the finance minister.business Updated: Mar 02, 2008 16:02 IST
The rupee is unlikely to appreciate as sharply this year as last year, when its gains were "extraordinary", and the economy will grow close to 9 per cent, the finance minister told Reuters on Sunday.
Palaniappan Chidambaram, speaking in an interview two days after unveiling his 2008/09 budget, said he aimed to contain inflation at about 4 per cent but this would depend on how world food and commodity prices panned out in the coming year.
The rupee gained more than 12 per cent against the dollar in 2007, largely driven by huge capital inflows, rising interest rates and a weakening dollar, hurting some labour-intensive export sectors and complicating management of monetary policy.
"I don't know whether the rupee will appreciate but even if it does I don't think it will appreciate as sharply as it did in 2007," Chidambaram said at his residence in the capital.
"2007 was an extraordinary appreciation of the rupee."
The partially convertible rupee closed at 40.01/02 per dollar on Friday. It hit a near-decade high of 39.16 last November, driven up by portfolio inflows into the stock market, but last month slipped to a five-month low of 40.25.
The $1-trillion-dollar Indian economy is the third largest in Asia and the fastest growing major one in the world after China. Gross domestic product grew at 9.6 per cent in the fiscal year 2006/07 and is on course to slow slightly to an estimated 8.7 per cent in the year, which ends on March 31.
The pace has been accompanied by rising inflation.
Wholesale price inflation, the most widely watched price measure in India, hit a two-year high of 6.7 per cent in early 2007 and is again on the rise, with a mid-February 2008 reading of 4.89 per cent, its highest in eight months.
"We would like a real GDP growth of 9-plus, which means we must contain inflation at 4 per cent or below. That is the ideal situation," Chidambaram said.
"But the ideal is an aspiration. What we will achieve is, I hope, pretty close to the ideal."
A finance ministry survey published on Thursday has said however that keeping expansion at 9 per cent a year would be a challenge due to inflation and infrastructure constraints. It warned raising growth to double digits, which has been a mantra of this government, would be even harder.
Farmers' Debt Plan
Chidambaram announced a controversial plan in the budget to write off $15 billion of small farmers' debts to banks in a move analysts say is aimed at wooing voters ahead of elections due by May 2009.
He has declined to say exactly how the write-off will work and parried the question again on Sunday when asked if he would use some of form of bond issue to fund the waiver.
"Whenever we firm up our plans we will disclose it at the appropriate forum."
Chidambaram, a Harvard-educated lawyer turned politician, has been gradually tidying up India's messy public finances.
By law the government has to bring the federal fiscal deficit down to 3.0 per cent of GDP in 2008/09 and Chidambaram has a more aggressive target of 2.5 per cent for the coming year from an estimated 3.1 per cent for this fiscal year.
But off-budget items, such as oil bonds issued to state-run retail fuel companies; have been creeping up as the price of oil worldwide has soared. India, which puts a ceiling on retail fuel prices, has kept them down by issuing special bonds to partially compensate state oil firms obliged to sell fuel at a discount.
Analysts have flagged the off-budget items as a potential fiscal concern, alongside a potentially substantial increase in salaries for more than 3 million government employees expected after a pay review is submitted at the end of the month.
Chidambaram said off-balance sheet items for 2007/08 totalled about 180-190 billion rupees ($4.5-4.8 billion), which represented about 0.3 per cent of GDP.
"Even if you add 3.1 to 0.3 that comes to 3.4. As we incur an off-budget liability we will certainly show it in the documents that are published from time to time," he said.
As for the government workers' pay round, the budget already contained provisions for the ordinary pay round, so he only had to provide for the increment over the normal increase.
"For that I think I will get additional revenues through better tax administration and tax buoyancy" he said.
"Failing which, I have got enough headroom in the fiscal deficit."