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PM's address

PM's address

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Published by Firstpost
PM's address at the ASSOCHAM Annual General Meeting
PM's address at the ASSOCHAM Annual General Meeting

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Published by: Firstpost on Jul 19, 2013
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I am delighted to be with you today to inaugurate theASSOCHAM’s AGM, 2013. ASSOCHAM has, over the years,provided valuable inputs from time to time for shaping ourpolicies for economic and industrial growth. I would like tocompliment Shri Rajkumar Dhoot and all his colleagues fortheir work and I am happy to share my thoughts with youtoday.Let me begin by stating upfront that we, like most othercountries, are going through a difficult period. I know thatbusiness is deeply concerned about the slowdown in oureconomy. It is looking to the government to bring theeconomy back to a higher growth path. This, I believe, is alegitimate expectation and is also upper most in our mind.When things are going well, government should interfereas little as possible. When things are going bad, as theyseem to be at present, it is the responsibility of theGovernment to become more pro-active.The most immediate cause of worry is the recent volatilityin foreign exchange markets. Much of this was due toglobal markets reacting to the likelihood of a withdrawal of Quantitative Easing III by the US Federal Reserve Bank.Large volumes of funds were withdrawn from emergingmarkets and there was a depreciation in many emergingmarket countries including Turkey, Brazil and South Africa.We too experienced a significant depreciation in theexchange value of the rupee. In our case, it was perhapsexacerbated by the fact that our current account deficit inthe balance of payment had increased to 4.7 percent of GDP in 2012-13.I can assure you, we are committed to bringing thecurrent account deficit under control by addressing boththe demand side and the supply side of the problem. Onthe demand side, we need to reduce the demand for gold
and the demand for petroleum products – the two biggestcomponents of our trade deficit.We have taken measures to control the demand for goldand I am happy to say they have had some affect. Goldimports declined sharply in June, and I hope they will stayat normal levels from now on.On petroleum products, we began a process of correctingthe prices of petroleum products last year. The gradualcorrection that was taking place in diesel prices hadreduced the gap in under-recoveries from almost Rs 13per litre to less than Rs 2 per litre. Unfortunately, some of this has been undone by the depreciation of the Rupee.However, our policy of adjusting prices to progressivelyeliminate under-recoveries remains in place.On the supply side, we need to push our exports. Thedepreciation in the rupee will help. Of course, there is atime lag before this benefit will be felt in terms of exportvolumes, but orders being booked from now on wouldcertainly benefit. We are also trying to remove theconstraints in the export of iron and other ores which sawa considerable decline during the last one year.The Reserve Bank has done its bit to stabilise marketexpectations. Initially it injected dollars into the market.This helped to some extent. More recently, it tookadditional steps to raise short term interest rates. Thesesteps are not meant to signal an increase in the long terminterest rates. They are designed to contain speculativepressure on the currency. Once these short termpressures have been contained, as I expect they will be,the Reserve Bank can even consider reversing thesepressures.Looking ahead, the rupee depreciation will help Indianindustry to compete effectively with other countries, both
in export markets and against their imports in ourmarkets.I hope industry is thinking seriously of how to becomemore competitive. It is because we are confident that itcan that we have entered into Comprehensive EconomicPartnership Agreement with the ASEAN countries as wellas the Republic of Korea. We are hoping to conclude asimilar agreement with the European Union soon.Ideally we should bring the current account deficit down to2.5 percent of our GDP. It is clearly not possible to do thisin one year, but I expect that the current account deficit in2013-14 will be much lower than the 4.7 percent levelrecorded last year. It will decline further next year. We willuse all policy instruments available – fiscal, monetary andsupply side interventions to ensure that the CurrentAccount Deficit declines further over time.Looking at the medium term prospects, I feel we can andwe should remain optimistic. The basic fundamentals of our economy are sound and healthy. We have been takingall possible measures to correct imbalances on the macrofront.The fiscal deficit, which is the accumulated effect of thefiscal stimulus given in the past, had expanded and itneeds to be reduced. The Finance Minister has targetedfiscal deficit of 4.8 percent of GDP in the year 2013-14and announced continuing reductions of about half apercentage each year subsequently, up to 2016-17. Weare determined to meet the target for this year.We also need to take steps that will revive the momentumof investment. A major focus of concern in the past fewmonths is that many projects have been held up forvarious reasons. We have seen a very strong expansion inpower generation capacity but coal supply became a

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