Faced with sliding rupee, Finance Minister P Chidambaram today said government will further liberalise the FDI policy and encourage public sector undertakings to raise funds from overseas markets.
Addressing media on completion of one year as Finance Minister, he exuded confidence that economy would record a growth rate of 5.5 to 6 per cent in the current fiscal, up from 5 per cent a year ago.
Chidambaram, who took charge of the Ministry on August 1 last year, said the government was also looking at raising import duty on non-essential luxury items and promoting exports to contain Current Account Deficit (CAD), which had soared to a high of 4.8 per cent of the GDP last fiscal.
"We are looking at some compression in non-oil and non-gold import to curb demand for non-essential luxury items," he said.
The other steps being considered by the government to deal with the CAD include relaxing the External Commercial Borrowing (ECB) norms, attracting investments from sovereign wealth and pension funds and NRI deposits.
Replying to questions on rupee, the Minister said though he did not have fixed target in mind but he would endeavour to check volatility and end speculative trades on the domestic currency.
The rupee slipped to the near record low level of 61.21 to a dollar in early trade today. It was trading at 61.20 but later recovered to 60.94 to a dollar.
On the possibility of a sovereign bond issue to raise forex, he said, "that is an option on the table but I will not rush into any decision".
The government recently relaxed the FDI policy raising the caps in several sectors and permitting foreign investment in many others under the automatic route.
Elaborating on compression on imports, Chidambaram said that officials were preparing a list of non-essential goods with a view to limit their inward shipments.
Specifically mentioning coal and electronic hardware, he said, "Electronic hardware can be manufactured in states like Rajasthan and Kerala."
On giving further extension to RBI Governor D Subbarao, Chidambaram said that he had expressed his desire to move on and the government has started looking for new central bank head.
The term of Subbarao as RBI Governor ends on September 4.
As regards the economy, Chidambaram said, "I am confident that we will take the Indian economy one rung higher in 2013-14. We are looking forward to a growth rate between 5.5-6 per cent and we will take all measures to achieve that goal".
The Minister, however, underlined the need for reviving investor sentiment and emphasised that "industry must play its part".
Industrial houses, he added, "appear to be confident when they decide to invest abroad, the same confidence must be exhibited in order to invest in India. The price of credit is indeed high, but it is not so dauntingly high that it should hold back investment".
The RBI policy announced yesterday, he said, hinted at easing of interest rates once the rupee stabilises and volatility in the currency market is reduced.
The government, the Minister said, would achieve targets with regard to fiscal and revenue deficits and disinvestment of state-owned companies. "This year I promise we will tackle both (fiscal and revenue) deficits. The target for fiscal deficit is 4.8 per cent of GDP. It is a red line and it will not be breached under any circumstances", Chidambaram said.
As far as Current Account Deficit (CAD) is concerned, the Minister said, "some more steps that are on the anvil. We expect that we will be able to fully finance the CAD this year too and we will not be obliged to draw down on reserves".
He further said that even without the additional measures, the inflows would be well above USD 80 billion, sufficient to finance comfortably the CAD.
The government took some strong measures to contain the import of gold, he said, adding in June it was down to 31 million tonnes but went up to 45 million tonnes in July. However, the import in June and July in the current fiscal is less than what was recorded in corresponding months last year.
"We hope to contain gold imports at a level of well below last year's total imports of 845 million tonnes and save a considerable amount of foreign exchange which will have a positive impact on CAD", he added.
On the question of floating a sovereign bond, the Minister said the option was on the table but the government would not rush into taking any decision. When asked whether the government has any specific value of rupee in mind, Chidambaram said: "We do not target any specific value of rupee, but we certainly do not countenance speculative transactions on the rupee, especially in the overseas market.
"Therefore in last two weeks, RBI in consultation with the government had taken a number of measures to stabilise the rupee...we need to stabilise the rupee and going forward take steps to promote growth. The rupee depreciation of June-July was unexpected".
As regards the role of Comptroller and Auditor General (CAG) whose reports have caused considerable embarrassment to the government, the Minister said, it was wrong on the part of the auditing body to question the policies.
"There is a clear distinction between policies and errors, mistakes irregularities in implementation of policy. Government makes policies, if policies are wrong Parliament will pull up the government, people will pull up the government.
"I do not think policy can be questioned by CAG. In the implementation of policy if there are irregularities, illegalities punish the wrong doers", he said.