Inflation to further moderate if crude prices do not spike: Chidambaram

NEW DELHI: Finance Minister P Chidambaram today said inflation will come down to tolerable levels if crude prices do not rise again and assured investors that current account deficit (CAD) would be financed without dipping into forex reserves.

The Minister also promised more policy decisions in the coming days saying "reforms is a work in progress".

Addressing a gathering of venture capitalists and private equity (PE) funds, the Minister called upon them to support at least 500 entrepreneurs and mentor them on good financial practices, corporate governance and labour laws.

Referring to inflation, Chidambaram said the government has taken steps and more measures will be taken on the supply side bottlenecks to moderate it. "But I can't promise you zero inflation... If crude oil prices do not spike up again, we can contain inflation to a tolerable level", Chidambaram said.

He said inflation, which was hovering around 9 per cent, has been brought down to below 5 per cent in the last nine months.

However, the headline inflation which was on decline for four months inched up in June to 4.86 per cent. India depends on imports to meet 80 per cent of its crude oil requirements.

On CAD, Chidambaram said the deficit was financed last fiscal without dipping into the foreign exchange reserves and this year it would be contained below the 2012-13 level of 4.8 per cent of the GDP.

"At the end of the year (2012-13) not only we financed the CAD, we also added $3.8 billion to our reserves. This year, the CAD looms large. "We are doing our sums and we are confident that with some stern measures that we have taken and we will take, we can contain the CAD to a level below last year's CAD. We will finance it fully and safely without running down reserves," he said.
On measures taken by the RBI yesterday to arrest decline in value of rupee, Chidambaram said, they are intended to "quell excessive speculative activity" in the foreign exchange market and to stabilise the rupee.

"These measures are for short term and certainly these measures should not be interpreted as a prelude or precursor to some kind of tightening of policy rates. I am confident that the rupee will stablise. We are targeting a level for the rupee...we want volatility to be contained", he added.

A stable rupee, the Minister said, was also necessary at a time when businesses are attracting investments and building good infrastructure with a view to making the country a base for large and diversified manufacturing activity.

The government, Chidambaram said, has taken as many as 56 decisions in the recent past with some more on the anvil. "Reforms is a work in progress. Every day we address issues and every day we try to make things better for business to be done in India.

"Going forward we will be able to ramp up the growth rate to the target of 6 per cent and above in the current year, 7 per cent and above in the next year and a year after to reach our potential growth rate of 8 per cent above", he added.

India's growth rate plummeted to a decade's low of 5 per cent during 2012-13. The Minister also exuded confidence that the government would be able to push through the long-pending insurance bill which seeks to raise FDI cap in private insurance companies to 49 per cent from 26 per cent currently.

Chidambaram said the government has set a fiscal deficit target of 4.8 per cent and "it is a red line and that will not be breached. We will remain within 4.8 per cent of GDP."