The Hindu Business Line : Chidambaram allays fears on industry slowdown

‘On a new growth plane’: The Finance Minister, Mr P. Chidambaram, addressing the inaugural session of the Economic Editors’ Conference along with the Minister of State, Mr S.S. Palanimanickam, in the Capital on Monday. The Finance Minister played down the dip in industrial growth and decline in non-oil imports recorded during September.

Our Bureau

New Delhi, Nov. 12 The Finance Minister, Mr P. Chidambaram, on Monday, sought to play down the dip in industrial growth and decline in non-oil imports recorded during September.

“I would be loath to draw conclusions from one month’s figures,” he said at the Annual Economic Editors’ Conference here, in response to a question whether the latest economic data indicated a slowdown of sorts.

The Index of Industrial Product (IIP) registered a 6.4 per cent year-on-year rise during September, against the 12 per cent rate in the same month of last year. September also registered a 0.15 per cent fall in the dollar value of non-oil imports.

Mr Chidambaram was, however, confident that the current fiscal will end up with both the industry and services sectors growing between 9 and 10 per cent (“perhaps close to 10 per cent”). That would mean roughly 83 per cent of the economy growing by 9-10 per cent, he added.

New growth plane

The Finance Minister asserted that “we have reached a new plane of growth” and this is mainly being investment- rather than consumption-driven.

“The command and control economy of India grew at a 3.5 per cent per annum during 1950-51 to 1979-80. Growth, which hovered around 5.5 per cent during the 1980s and 1990s, increased to 5.8 per cent during 1998-99 to 2003-04 and further to 8.6 per cent since 2004-05,” he pointed out, claiming that the new growth phase started with the coming to power of the United Progressive Alliance (UPA) Government.

While acknowledging that 2003-04 — the last year of the previous regime — had also recorded a growth rate of 8.5 per cent, Mr Chidambaram, however, maintained that it was more of a “statistical illusion” resulting from a low 3.8 per cent base figure for the preceding fiscal.

“The sustained growth phase began around September 2004 when investments started picking up. The investment-GDP ratio has registered an unprecedented increase from 22.9 per cent in 2001-02 to 35.1 per cent in 2006-07. The challenge is to raise it to 40 per cent,” he said.

Price worry

When asked about the single biggest worry amidst this overall buoyant picture, Mr Chidambaram said that it has to do with the soaring fuel, food and commodity prices world-wide. The wholesale price index-based year-on-year inflation has come down from 5.94 per cent in end-March to 2.97 per cent as on October 27.

However, “there are still some pressures in terms of the consumer price indices, but we expected these to get moderated”.

Regarding the rupee’s sharp appreciation against the dollar, Mr Chidambaram said there are both upsides and downsides to this phenomenon. “The upside of a strong rupee is it helps contain inflation, makes imports cheaper and forces Indian industry to become more competitive. The downside obviously is it affects exports, which is why we have announced enhancement of DEPB and duty drawback rates, reduction in interest on pre- and post-shipment credit and other packages valued at Rs 5,200 crore,”, he said.

No capital curbs

The Finance Minister also ruled out any fresh measures to curb capital inflows into the country as of now. “I think the measures (already) taken by the Securities and Exchange Board of India (SEBI) will moderate flows in the short-to-medium term. We didn’t expect instant results (from the move to curb issue of participatory noted by foreign institutional investors),” he added.