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Reforms stalled, not stopped, and will need govt action, says Chidambaram

"With Parliament having stalled reforms, further liberalisation will have to come through executive action and non-legislative action," Finance Minister Palaniappan Chidambaram said recently. "Legislative reforms have been stalled. Not stopped, but stalled."

He pointed out that wherever new legislation was not needed, the government can bring about the necessary changes. However, in areas where new laws were needed, it had become difficult to build a consensus in Parliament, he said, adding that such a consensus was required to push reforms ahead and dismantle controls.

The Insurance Regulatory Authority bill was one such case where a lack of consensus forced the government to withdraw the bill, which, he said, would have been a step towards the eventual opening up of the state-controlled sector to private firms.

The United Front government failed to garner a majority to pass the bill following opposition by the Bharatiya Janata Party. Other bills which the government could not pass included the bills on patents and sugar trade.

The finance minister insisted that a consensus for reforms existed. "There was consensus. Consensus weakens sometimes, it strengthens sometimes," he said, adding, "At the moment, it appears that a consensus for legislation-driven change is weak."

Political parties took different stands inside and outside Parliament, he added. For instance, regarding the insurance bill, the BJP leaders had publicly supported the insurance bill but on the floor of the Lok Sabha, backbenchers rallied against it.

He also remained doubtful whether another election could build the much-needed consensus, and pointed out the next Parliament might also remain divided.

Chidambaram said there was a way out. The people, he said, must reflect soberly and somberly, and ask, ''What is Parliament's role in reforms?"

According to the minister, it was the Reserve Bank of India's policy to intervene and prevent volatility and speculative activity in the foreign exchange market.

"The value of the rupee will be determined by the market, but the Reserve Bank of India will intervene to prevent volatility and speculative activity," he said.

''We don't approve of volatility,'' the finance minister said. "We don't approve of speculative activity. Otherwise it will be market determined."

The rupee has fallen to an 18-month low of 36.55 against the US dollar on Wednesday, September 4. It has been falling for the entire week so far.

The Reserve Bank of India, which had been buying dollars throughout the earlier part of the year to arrest the rupee's rise against the US currency, has now been actively selling the dollar. It sold $200 million on Wednesday.

Chidambaram said the RBI needed to ensure that the volatility subsided. "The RBI is monitoring the matter," he said, adding, "Our position is clear: we will not allow volatility," he said.

He said the value of the rupee was not a constraint on investment, but added that a stable currency will be welcomed by the foreign investors.

Exporters have expressed satisfaction over the fall in the value of the rupee. "That's why we don't take sides," Chidambaram said. "There's always somebody who's happy with this and somebody who's happy with that."

The finance minister reiterated that the government had taken no position on a proposed band within which the rupee would be allowed to fluctuate.

Chidambaram insisted that at present, there were no plans on having a band for the rupee, and refused to commit himself further.

Pointing out that exports and industrial growth were sluggish, he suggested a cautious approach towards the rupee's capital account convertibility.

Chidambaram said that India deserved to be a member of the Asia-Pacific Economic Cooperation forum. To achieving this objective, it needed to clear the political hurdles on its path, he added.

The finance minister declared that the country could end poverty by 2020 if it sustained a 7 to 8 per cent growth rate. To increase the long-term growth rate, an increase in savings and investments was needed.

"I am convinced that we can sustain seven per cent growth and attain eight per cent growth. I'm also convinced that if we sustain seven to eight per cent growth, poverty will be abolished by 2020," he stated.

India's gross domestic product grew by 6.8 per cent in the 1996-97 fiscal year ended on March 31, and 7.1 per cent in 1995-96. Chidambaram said if India increased its savings and investment levels, annual GDP growth would rise to eight per cent.

He pointed out that China had far higher levels of savings and investment, noting that Indians tended to spend a higher share of their income.

The gross domestic savings accounted for 25.6 per cent of GDP in 1995-96 (April-March). Current gross domestic investment as a share of GDP is about 27.5 per cent, said Chidambaram. He added that he would like savings to go up to about 28 per cent and investment to about 30 per cent, which would boost annual real GDP growth to about eight per cent.

Chidambaram said the long delay in hiking the prices of petroleum products only shows that decision-making in areas involving subsidies and administered prices is difficult, and one must be patient and one must sometimes bear the cost also.

The finance minister stated that India's foreign exchange reserves were reasonable, but must grow in line with the country's increased trade.

He said the country's foreign exchange reserves, including gold and special drawing rights, stood at $ 29.96 billion on August 14, up from $ 22.36 in the past year.

Chidambaram said there is no target for foreign exchange reserves. He pointed out that China has reserves of $ 120 billion. "Why should anybody at $ 30 billion feel that the reserves are comfortably high?" he asked.

He added that reserves are at a reasonable level given the present level of imports and exports, but he was not content with the level of imports and exports."

As per the current economic indicators on the state of the economy, he said they tell him the reserves are reasonable, inflation is reasonably under control, but exports are not buoyant.

It also indicated the industry sector of the economy is still sort of waiting to take off, so one has to now travel a bit cautiously until exports pick up, he added.

The finance minister said that bilateral trade as a share of the country's GDP is currently 21 per cent.

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