Pinning hopes on a bumper harvest, export recovery and sliding gold imports, Finance Minister P Chidambaram today said green shoots are visible and the government will be able to lower the current account deficit to below USD 60 billion.
The minister, however, said containing inflation and reviving investment will remain a challenge.
Addressing a press conference a day after the government released data showing the Index of Eight Core Industries grew at an 11-month high of 8 per cent in September, Chidambaram impressed upon India Inc to move ahead with their investments and not to sit on cash.
"Core sector growth...Strong monsoon and healthy exports augur well for economic growth. There are still many challenges, most important being inflation and reviving investment.
"But I think there will be green shoots even in investment. We are confident that the measures taken by the RBI and our own measures at maintaining fiscal discipline will eventually bring about a moderation of inflation", he said.
Chidambaram said the government will endeavour to get the long-pending insurance amendment bill passed in the winter session of Parliament. The bill seeks to raise FDI in the sector to 49 per cent from 26 per cent.
Draft amendments to the Direct Taxes Code (DTC) have been finalised and will be placed before the Cabinet for approval, he said.
Chidambaram said that he was hopeful of reducing the current account deficit (CAD) to USD 60 billion from the earlier estimate of USD 70 billion. The CAD is the difference between the inflow and outflow of foreign exchange.
The CAD touched the all-time high of USD 88.2 billion, or 4.8 per cent of GDP, in 2013-14.
Referring to the rise in prices, Chidambaram said the good monsoon and subsequent bumper agricultural output will improve the inflationary situation.
"I look forward to moderation in inflation. We have a lot of evidence to show that inflation is fuelled by food," he said.
High food prices, especially of onions and other vegetables, pushed up September inflation to a seven-month high of 6.46 per cent.
"State governments have to take greater initiative so that fruits and vegetables are distributed properly. There is power to take action against hoarders and that rests with state governments," he added.
The minister said the fiscal deficit target of 4.8 per cent of GDP and the goal of raising Rs 40,000 crore from disinvestment would be met.
"I am confident that we will be able to adhere to the red line on the fiscal deficit" Chidambaram said.
Recalling his recent US visit, he said, "I got the impression that they continue to retain faith in India's economy and that the investment cycle, which in my view is revived, will only gain momentum in the next few weeks and months."
The minister said the rupee, in his view, is still a little over the appropriate exchange rate. The local currency, which dipped to a historic low of 68.85 to a dollar in late August, has recovered and closed at 61.74 today.
The minister said the rupee is "by and large stabilised. But in my view it is still a little over what I would consider the appropriate exchange rate. There is no such thing called appropriate exchange rate, but...It is slightly over the appropriate exchange rate level."
To a question on the retrospective tax issue, he said amendments to the Income Tax Act will be introduced in Parliament only after resolving the Rs 11,200 crore Vodafone tax case.
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