Tough Times

The economic growth of India is likely to have hovered around a three-year-low for the second quarter of the current financial year with finance minister P Chidambaram indicating that Asia’s third-largest economy grew around just 5.5% during July-September.
“When growth declines to 5.5%, as it has in the first quarter (April-June) of this financial year, and when the growth is likely to be around 5.5% in the second quarter, it goes without saying we are facing a difficult situation,” Chidambaram said here.
He sought the support of the Opposition in pushing through economic reforms, saying the economy is not a football that can be kicked around by political parties.
“Economic welfare of the country is bipartisan and must be kept above politics...economics is too important and economic future welfare of this country is too important to become a football to be kicked around by political parties”, the finance minister while releasing a book.
The minister’s statement is the first estimate of GDP growth for the second quarter, for which the official figures are due to be released next Friday. The economy expanded by 6.9% during the corresponding period in 2011. Though Chidambaram had said last week that economic activity was expected to pick in the third and the fourth quarter, he had told earlier this month that growth rate for the full year could be 5.5%, the slowest in a decade.
The government had started the year on a rather bullish note predicting a 6.5-7% growth but has been forced to lower the projection amid few signs of revival in domestic and global demand. Since Chidambaram took over, he has focused on improving the fiscal health, a key deterrent for a rate reduction by the Reserve Bank of India, something that the finance minister has been pushing for. The central bank has also cited high inflation to argue against an immediate rate cut, which the government and industry believe is holding up consumption and stalling investment. The minister’s attempts to revive investment by focusing on stalled projects have also not yielded results with the proposed National Investment Board caught up in inter-ministerial wrangling.
“We have to overcome this difficult situation through innovation, finding new ways of increasing production of goods and services and finding new ways to help the poor of the country,” he said. The scenario on the fiscal front, too, is not rosy because the telecom spectrum auctions have garnered revenues far below expectations and the disinvestment programme has got off to a slow start. Chidambaram, however, appeared confident of meeting the targets and ruled out the possibility of borrowing more funds from the market.
The government finds itself in a tight spot of reviving the economy before it seeks a re-election in 2014. The weak economy has compounded India’s fiscal problems and raised the spectre of a credit rating downgrade. However, Chidambaram expressed hope that once “one or two” issues were resolved, it would become possible for the government to push through key economic reforms bills in the ongoing winter session. The important legislations awaiting approval of Parliament relates to insurance, pension, banking and Companies Bill.
Finance minister P Chidambaram spoke in Pune about the need for bank consolidation, calling it inevitable and drawing attention towards the need to have two or three banks of a global scale. “We must create two-three world-sized banks. China already has them,” said the finance minister, although he added that consolidation would not be thrust upon Indian banks.