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Inflation will be at single digit level, fiscal deficit 5.5 pc, RBI will be fully autonomous, declares FM

Union Finance Minister Yashwant Sinha today vowed to keep inflation at a single digit level and outlined steps to ensure that the fiscal deficit does not cross the targeted level of 5.6 per cent of the gross domestic product.

''I gave a commitment (to foreign investors) that the fiscal deficit will not cross 5.6 per cent. It may be 5.5 per cent,'' Sinha said inaugurating the economic editors conference in New Delhi.

The finance minister announced that the government will provide complete autonomy to the Reserve Bank of India. In fact, it has been operating fairly independently, he said.

The busy season credit policy to be announced soon would mop up the excess liquidity. At the coming World Bank and International Monetary Fund annual meetings, the Indian government would make a strong case for reform of the international financial system.

Financial instruments which serve only short-term purposes without taking care of long-term interests will not be permitted in the housing sector that is being opened up for foreign direct investment.

He predicted an upturn in industrial demand in the next three months as a result of the steps taken by the government. The disinvestment target of Rs 50 billion will be met and may even be crossed.

The prime minister and he are monitoring the implementation of power projects. He said at the recent meeting of state finance ministers and chief ministers no consensus could be reached on the consignment tax. However, there was consensus on introduction of VAT nationwide and reform of the sales tax. Foreign direct investment would be encouraged.

Referring to the Tata withdrawal of the airline application, Sinha said this was solely a decision of the Tatas and the government had nothing to do with it.

The level of non-performing assets of banks is no cause for alarm. he felt. However, banks must keep a close watch on their NPAs. They must be brought within more sustainable levels.

International investors, he said, have got the message that India is a safe investment destination and assured that India will not return to protectionism.

Instructions have been issued to various ministries that expenditure targets should not be crossed at any cost. Despite the revenue shortfall in excise and customs in the first quarter, the revenue situation on this count appears to be looking up, the minister said.

There was a decline as far as the customs side was concerned on account of the adverse international situation. Excise revenue is also picking up. If by the end of the year there is any shortfall on the customs side largely on account of depressed international petroleum price situation, Sinha said the revenue shortfall will be made up through direct tax sources. New assesses have been identified by income tax commissioners.

Sinha said the inflationary situation was a matter of concern for the government. A close watch was being kept on the growth of the money supply. It would be the government's endeavour to keep money supply at the budgeted level. The price rise was confined to agricultural commodities while manufactured goods have not registered a price rise.

On rising gold imports, Sinha said: ''We should do nothing that drives gold underground.''

India will make a strong plea at the coming multilateral funding agencies meet in Washington and at the Commonwealth finance ministers' meet in Canada to put in place sound international financial arrangements. ''These should be such that countries are not at the mercy of a few who can play havoc with currencies.''

There was need for a better international understanding of the problems facing the countries. International institutions and organisations have to be strengthened so that they can play their role as lenders of last resort.

Sinha said his ministry does not believe that it was the repository of all knowledge. Similarly, international organisations also do not have the totality of wisdom. No one in the international organisations has a monopoly over wisdom, he said.

He started his address by saying that he was the most maligned finance minister. The words of criticism written about him would run into million-odd words.

Sinha said the Indian economy was caught in a slowdown phase when the government assumed office in March 1998. ''It was a situation not of our creation,'' he said.

He had discussed the situation with trade and industry and the academic world and decided to formulate policies on that basis. Major policy decisions were taken in the Budget; however, some policy decisions were taken even after the Budget was presented. In the last six months or so, there have been a series of events which appear to sap the confidence of different segments of society.

The nuclear tests followed by sanctions by the United States were two such factors. The sanctions resulted in interruption of overseas development assistance by some other countries. He said he was criticised that the Budget had not taken into account the impact of sanctions. There were reports in the media that these would cost the nation $ 20 billion. Later this was scaled down to $ 2 billion. The Budget was described as the biggest catastrophe which has befallen the nation.

Moody's had downgraded India by two grades. This was followed by the deepening of the East Asian crisis and the problems of Japan. ''Everything seemed to go absolutely out of hand,'' he recalled.

With that kind of backdrop, he had reached out to the people, including trade, and explained to them that the situation was not as grim as was being made out to be. The entire question was that of depressed sentiment.

''We started with a huge handicap in terms of the image of the government and party,'' he said.

Sinha said even now an image is sought to be created that ''We are strange people, out of a strange historical situation.'' Nothing can be farther from the truth.

Sinha said the government has taken steps so that foreign investment is encouraged. The government's policy has been to give foreign investment the kind of role it deserves.

The finance minister, however, said the domestic and international mood is changing. This is because India is being perceived as a stable country in a turbulent world.

Even in 1991, when the country was facing its worst economic crisis, the country did not default on its payments. ''There is not a single instance where the Reserve Bank of India or the Indian government has asked for a rescheduling. That is a proud record,'' Sinha said.

Dispelling doubts that India may turn protectionist, Sinha said ''No country can be an island unto itself.''

UNI