CAD to be fully financed; won’t let rupee go into free-fall: FM

Larger mandate for RBI is growth,job creation,says Chidambaram

Written by ENS Economic Bureau | New Delhi | Published:August 15, 2013 1:38 am

Underlining the government’s commitment to contain the current account deficit at 3.7 per cent of the GDP,finance minister P Chidambaram on Wednesday said that it would be considered akin to the fiscal deficit target and would not be breached under any circumstance.

In a statement to the Rajya Sabha,the minister also expressed confidence that the CAD would not only be fully and safely financed,but there would be some accretion to the foreign exchange reserves as well. Warning that there would be some pressure on the rupee despite recent measures,he said though the government would not allow it to go on a free fall,the currency would have to find its own level.

“Given our inflation,fiscal deficit and CAD,there will be some pressure on the rupee. But I can’t allow it to go on a free fall and we will try to curb volatility and quell speculation in the currency market,” Chidambaram said during a debate on the economy,adding that,however,the rupee must find its own level based on demand and supply conditions.

The finance minister had on August 12 unveiled a number of measures to compress import demand and attract foreign flows while announcing that the CAD would be contained at 3.7 per cent of the GDP or $75 billion in 2013-14. India’s CAD swelled to 4.8 per cent of the GDP in 2012-13 and is seen as one of the key reasons for weakness in the rupee,which fell nearly 10 per cent in the last three months.

Meanwhile,less than a month before the Reserve Bank of India gets a new Governor,finance minister P Chidambaram said the central bank’s focus should not just be price control and inflation but should also include the larger mandate of growth and employment.

“Yes,the mandate of central bank traditionally is price stability. In fact,there are many who would argue that should be only goal of the central bank. But I believe,my party believes,my government believes that price stability must be seen as part of the larger mandate of growth and employment,” Chidambaram said.

Referring to a recent statement by US President Barack Obama about expectations from next chief of the central bank,the finance minister said,“Obama two weeks ago said,‘my next Fed chairman must have two objectives one is price stability and other one is employment’.”

Seeking to build a consensus on the issue,Chidambaram said that a clear message to the RBI can then be sent.

A monetary policy which not only looks at price stability and inflation but also supports the larger mandate is a key priority of the UPA government,Chidambaram said,adding that other top issues include fiscal consolidation,inclusive and sustainable growth,promoting investments — both domestic and foreign,as well as concern for poor to ensure they get better wages and prices for produce.

“Growth is a necessity which has lifted millions out of poverty but it must be inclusive and sustainable,” the finance minister maintained.

Referring to the decision made by village councils to not allow bauxite mining on Niyamgiri hills,he said the government would have to find alternative sources of raw materials.

‘Bhagwati,Sen concerned about poverty’

Trying to bridge the Jagdish Bhagwati- Amartya Sen debate on growth,finance minister P Chidambaram on Wednesday said both economists are concerned about prosperity and abolition of poverty.

“While one has a passion for growth,the other has compassion for the poor,” he said during a debate in the Rajya Sabha. “I believe this country will be served well if… all of us agree that we must combine our passion for growth with compassion for the poor,” he added. ENS

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