NEW DELHI (TIP): The biggest threat to economic reforms is an unstable government in 2014, finance minister P Chidambaram told investors in Singapore on Wednesday as he vowed to push ahead with the reform agenda and fiscal consolidation. The finance minister is on whistle-stop tour of Hong Kong and Singapore as part of his move to meet foreign investors and convince them about the reforms being undertaken in India and the strength of the India growth story. “This is in line with our view that politics will be focus for markets from late 2013,” a report from Bank of America Merrill Lynch, which hosted the finance minister’s meeting with investors, said. Chidambaram hoped to get the insurance and the pension bill approved in the Budget Session of Parliament.
“He mentioned that behind the noise, there were quiet negotiations with the opposition parties for support from them,” the report said. The finance minister expects the economy to grow by 5.7% in the current fiscal year and around 6% to 7% in FY14. “By FY15, he is hoping to go back to the 8% GDP growth rate of the past,” the report said. The FM said GST is unlikely to be implemented by April 13 although he hopes to introduce the bill in the Monsoon Session and get it approved in the Winter Session (December 2013).
“This assumes a consensus with the states post the reports by the two committees (one on the design of GST and the other on compensation).” Chidambaram was confident of keeping the fiscal deficit in the current financial year within the revised target of 5.3% of GDP. “This would be done mostly through reducing expenditure and austerity measures. Over the longer term fiscal deficit would be cut by 0.6% every year to bring it to 3% of GDP by FY17 through cost cuts as well as enhanced revenue (but without tax increases),” the report said. The FM said he expects government revenues to rise by 20% every year though not by raising taxes but having a stable tax regime, non-adversarial tax compliance and a fair dispute settlement mechanism.
Chidambaram’s promise of not to raise taxes have come as a relief for jittery investors and companies, who were expecting imposition of a higher tax burden in the 2013- 14 Budget against the backdrop of a tight fiscal situation. The FM reiterated that the cabinet committee on investments would speed up project approvals. “Moreover public sector undertakings have been asked to spend on projects as per targets or return the surplus cash by way of special dividends,” the report said.