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FM backs Rajan, says Parliament must set inflation target for RBI

Painting a rosy picture of the economy, the minister said the fiscal deficit target of 4.6 per cent of GDP for 2013-14. Talking to reporters after his customary address to the RBI Board following the Budget presentation, Chidambaram, who took over as Finance Minister in August 2012, emphasised the economy is presently more stable than it was 18 months ago.

‘I am glad that the measures taken by the RBI and measures taken by the government are complementing each other and have delivered substantially the goal of stability that we had set for ourselves 18 months ago,’ he added. Elaborating on prices, Chidambaram said he was happy that Rajan in one of the statements ‘acknowledged that the government through Parliament will set an inflation target and leave the regulator to find ways and means to achieve that target. I think that is the correct approach.’

The sovereign has a right to set the target and then the RBI has a mandate to take steps to achieve it, he said.

‘I think there is great degree of convergence on the way to go forward... We must achieve both goals of price stability and growth...I am sure working by together, the government and central bank will be able to achieve these goals,’ he said.

The RBI-appointed Urjit Patel panel has recommended that the central bank should set a retail inflation target of 8 per cent by January 2015 and 6 per cent by January 2016. Inflation as measured by the consumer price index was 8.79 per cent in January.

Referring to the economy, Chidambaram said it ‘certainly is more stable today than what it was 18 months ago. That is reflected in the strengthening of the rupee, that is reflected in heightened interest of investors, both FDI and FII.’

PC confident of containing CAD to $40 billion this fiscal

New Delhi:
India's current account deficit (CAD) will be contained at less than $40 billion this financial year, well below the record level in 2012-13, Finance Minister P Chidambaram said on Friday.

‘On the CAD, the budget speech says it will be contained below $45 billion. Today, 23 days before the end of the year, we can say confidently that the CAD will be contained at below say $40 billion,’ Chidambaram told reporters here.

The CAD, the excess of foreign exchange outflows over inflows, narrowed to $26.9 billion (3.1 per cent of GDP) in the first half (April-September) of 2013-14 from $37.9 billion (4.5 per cent of GDP) in the first half of 2012-13.

The CAD narrowed sharply to $4.2 billion (0.9 per cent of GDP) in Q3 from $31.9 billion (6.5 per cent of GDP) a year earlier as merchandise exports picked up and imports moderated, particularly gold imports, the RBI said on 5 March.

Both the government and the Reserve Bank of India had taken steps to restrict gold imports, one of the main causes for the widening CAD in 2012-13.

The government increased customs duty on gold thrice in 2013 to 10 per cent and the RBI imposed a series of curbs on inward shipments of the metal.

Chidambaram also expressed confidence the government would achieve the revised fiscal deficit target of 4.6 per cent in 2013-14.

‘We will achieve the fiscal deficit target for the current year. The revised estimate says 4.6 per cent and I am absolutely confident that we will achieve the target,’ he said. The gap between expenditure and revenue was 4.9 per cent of GDP in the previous financial year.

After taking over as Finance Minister in August 2012, Chidambaram had drawn up a financial consolidation road map to lower the fiscal deficit to 4.8 per cent of GDP in 2013-14, 4.2 per cent in 2014-15 and 3.6 per cent in 2015-16.
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