New York: Asserting that India can absorb $50 billion foreign investment annually, Finance Minister P Chidambaram has said the downturn in Indian economy was temporary and growth will return to 8 per cent in two years. Acknowledging the largeness of the current account deficit (CAD) at around 5 per cent of GDP in 2012-13, he said the government had no timelines or targets in mind for bringing it down. He expressed hope that softening of oil prices will help bring down CAD.
Addressing the international media here, Chidambaram said the government was reviewing sectoral FDI caps as many of them were imposed at different points of time. "India is poised for a potential growth rate of 8 per cent and the country has not fixed the limit to foreign investments," he said.
"We as a country can easily absorb USD 50 billion investments a year or more. In the hierarchy of foreign inflows FDI ranks first followed by FII and external commercial borrowings. FDI is important to India too as in any other country," he said.
Chidambaram, who met investors in Canada and US this week, said Indian downturn was a temporary phenomenon. "I agree that it's a legitimate question but we have an answer. Between 2004 and 2012 we had a growth rate of 8 per cent for six years and four years witnessed a growth rate of 9 per cent.
"We will be back to 6 per cent in the current year. The fact that the growth in 2012-13 declined it's not permanent and all the estimates show good upturn," he said.
Finance Minister said no targets were fixed for bringing down the CAD and hoped that 2012-13 fiscal year to be around 5 per cent of gross domestic product (GDP). "I know the largeness of the size of CAD and we need to travel some distance before we are able to bring it to 2.5 per cent but that can happen in one year or two. CAD has no fixed numbers. Prudence tells us that CAD must be 2.5 per cent or so. There is no target date," he said.
Chidambaram said there was no agreed number on CAD and was aware that the third quarter of 2012-13 CAD was large. The fourth quarter, he said, is likely to be better and for the overall year, "probably around 5 per cent, maybe a shade below five percent."
CAD depends on the cost of imports and also rise in exports and if oil prices soften there will be good news. arger exports and cost of imports play a huge role, he said. On gold prices in India and globally, the Finance Minister said they are indeed falling but was apprehensive that people may import more gold. "We have a passion for gold and we have to live with it. Prices may fall but volumes may rise and we can't make any predictions on this," he said.
Chidambaram put GDP estimates for 2013-14 between 6.1 per cent and 6.7 per cent. "No economist can make an estimate three or four years down the lane. Beyond that, it is only an aspiration. In fiscal 2014-15, India wants to go above 7 per cent. Fiscal 2015-16, we want to go back to our potential growth rate, which is above 8 per cent," he said.
On his roadshows, he said he was not looking at any number nor was he signing any deals. "I am here to talk to investors who are showing positive response. I am here to make sure that they continue to remain invested in India and to increase their allocation to India," he said answering a wide-range of questions on India from the Indian and American media.
On the decline in investments in India in the last few years, Chidambaram said they were because of their own issues and domestic problems. "They (investors) have become more cautious and need money for their own resources. Their economies require more funds and added to the downturn in India, naturally," he said.
On ratings given by agencies, he said India has made out a case for ratings upgrade. "Some (agencies) upgraded from negative to stable and there will be an upgrade for sure. In course of time there will be an upgrade," he said. "We were never in any danger (of a rating downgrade) and we feel the negative outlook is perhaps not justified at all. I believe that they downgraded China from AA plus to A plus. If they are looking at candidates for downgrading, I can suggest a few," he said.
Answering questions on the concern expressed in some sections on growing corruption cases and infrastructure lacuna in India, Chidambaram said "of course there is corruption. "Corruption was raised as one of the issues in meetings with investors but they did not dominate the discussions. In the last two days if two questions were asked on corruption, 20 were on infrastructure development," he said.
The Finance Minister said India needed $1 trillion in infrastructure projects alone in the next five years, of which 47 per cent will come from private sector and remaining from government and public sector enterprises. Stating that there was a need to review FDI sectoral caps, Chidambaram said, "There were many caps imposed at different points in time. We have set up a committee to go into the nature of each cap and ask a question: Has the cap served a purpose? Does it continue to serve a purpose? If it does, let the cap continue. If it does not, then the cap should either be relaxed or removed."