Despite potential headwinds, including the impact of the erratic monsoon on farm output and coal shortages tempering electricity generation, Finance Minister Arun Jaitley on Saturday predicted faster growth in the coming months.
A day after the government released its strongest economic growth numbers in over two years, the Finance Minister said that rekindling the investment cycle remained the top priority for the government and the steps taken by it should start yielding results in the coming months.
“With the long-term impact of all the initiatives we have taken, I am sure the impact in the coming quarters will be much larger,” said Jaitley. Pointing to a surge in manufacturing orders, a revival in the capital goods industry and renewed international investor interest, he said he expected higher GDP growth than the 5.7 per cent recorded in the quarter ended June 2014.
“In the first quarter, a 5.7 per cent growth rate is encouraging. With the long-term impact of all the new initiatives setting in, I am sure the impact in the coming quarters will be much larger,” Jaitley said at a press conference here.
The Finance Minister said there has been a sharp change in the attitude of foreign investors towards India. “When we came to power, our priority was to contain inflation, restart the growth agenda and keep fiscal deficit at acceptable limit… The economy was facing significant challenges while decision-making had slowed down. We were ceasing to be on the investors’ agenda while the mood was significantly low. It is in this backdrop that we took over. (However) election result itself was a mood changer,” he said, adding that the government is clear about the direction in which it wants to move.
On inflation, Jaitley admitted that the weak monsoon poses a challenge in the coming months. “There has been by and large moderation of inflation. Normally, this is the time when the prices of some vegetables become steep. This year, a special effort has been made… The Department of Consumer Affairs is making a special effort. The country has enough food stock… Monsoon may have some effect only where there is drought,” he said, responding to a query on the food price situation in the country.
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Asked when the industry can expect a cut in interest rates, Jaitley said, “I hope very soon. I hope that those who decide are also listening.” The RBI has been maintaining a hawkish stand with regard to the monetary policy on the ground that inflation is still too high for comfort. Consumer prices rose 7.96 per cent in July, compared with a year earlier, after climbing 7.46 per cent in June. However, the stand has attracted criticism from the industry, which argues that high interest rates have been choking growth and investments.”
The government is working on expanding economic activity, hastening decision making, easing the process of doing business in the country and opening up investment limits in significant sectors, he said. The government has already liberalised the FDI regime for defence, railway infrastructure and the construction sector, while the work is on in the insurance sector.
“There was strong prime ministerial backing for all the steps we took. Both the Prime Minister and the PMO were in support of most of the steps,” said Jaitley, reaffirming that the “challenge” of the fiscal deficit target of 4.1 per cent, set by the UPA government in the interim Budget, will be achieved.
On the Supreme Court’s order earlier this week declaring all 218 coal block allocations made by the Centre from 1993 to 2010 as “illegal”, Jaitley said that while the decision takes away the power of arbitrary allocation, “we can’t allow the fate of coal to hang in mid-air”. He said, “Either they have to be utilised by existing users or new users. I hope a decision on this will not linger on… if resources can’t be utilised, its adverse impact is inevitable. So I hope it won’t take much time.”
The court is set to decide on the fate of the mines on Monday. There are fears that the court’s ruling may have an adverse impact on the core sector growth, which has shown some improvement in the current financial year.
When asked about the perception that power is too centralised in the NDA government, Jaitley dismissed the charge, saying ministers enjoy a large extent of “decentralisation with accountability”. “See, this whole debate is not about centralisation. For instance, I look after different departments in the government and the extent of decentralisation that we enjoy is very large. But certainly, if you have a very active Prime Minister, along with this decentralised authority which has been given to us, there will be an element of accountability,” he said, adding that the decisions were being taken by ministries even as the PM or the Prime Minister’s Office was being consulted on important issues.