News / Asia

India to Stick with Austerity Despite Looming Election

India's Finance Minister Palaniappan Chidambaram speaks during an interview with Reuters in New Delhi, Oct. 7, 2013.
India's Finance Minister Palaniappan Chidambaram speaks during an interview with Reuters in New Delhi, Oct. 7, 2013.
Reuters
The Indian government will have to rein in spending and cut subsidies to meet its fiscal deficit target, the country's finance minister said on Monday, underlining that an austerity drive will not be blown off course by an election due next year.
 
P. Chidambaram told Reuters ahead of a trip to the United States - where one stop will be to woo investors on the West Coast - that he will not allow the deficit to cross a “red line” set at 4.8 percent of gross domestic product this fiscal year.
 
“We've issued austerity instructions, it will bring us some savings,” he said.
 
The finance minister's vow to contain the deficit means there will be little room ahead of a tough election to spur growth, which has slumped from a double-digit pace in early 2010 to below 5.0 percent, its lowest in a decade.
 
The government recently introduced a plan to distribute cheap food for two-thirds of the population, a step widely seen as wooing voters ahead of the election. But - without giving details - Chidambaram pointed to food subsidies as one area where spending would need to be addressed in coming months.
 
Along with pallid growth, Asia's third-largest economy is facing stubborn inflation, companies are struggling and bank asset quality is worsening. But Chidambaram shrugged off the risk of a cut in India's sovereign credit rating, which is one precarious notch above junk status.
 
“There is no case for a downgrade,” he said in an interview at North Block, the sandstone colonial building that houses the finance ministry in New Delhi. “If any rating agency is looking for candidates to downgrade there are half a dozen other countries.”
 
The Indian rupee was one of the hardest-hit emerging-market currencies recently amid alarm in financial markets about an imminent “tapering” of the U.S. Federal Reserve's monetary stimulus, falling by about 20 percent at one point from May.
 
It has recovered somewhat recently, and Chidambaram said the central bank may now be able to consider reversing some of the liquidity tightening steps it took to shore the currency up.
 
“If the volatility of the rupee has been contained and speculation has come to an end, the central bank may want to unwind some of the measures it took earlier, he said.
 
On Monday the Reserve Bank of India cut a key overnight interest rate, further dialing back an emergency measure it had imposed in mid-July in order to defend the rupee that had tightened market liquidity and pushed up borrowing costs.
 
Chidambaram said there would be some impact when the Fed's tapering - which was put on hold - does eventually come, but it was now mostly factored into the market and he was confident that speculators had been put in their place.
 
“We think we have sent a message to everyone - don't speculate on the rupee,” he said.
 
“Don't write us off”
 
Chidambaram said the economic downturn was no reason to think that his Congress party, which has been weakened by years of fractious coalition rule and a string of corruption scandals, would be ousted in a national election that must be held by May.
 
“Don't write us off so easily,” he said, adding that the next leader of the Congress party would be Rahul Gandhi, scion of the Nehru-Gandhi dynasty that has ruled India for most of its 66 years since independence.
 
“I am glad you acknowledge prime minister Rahul Gandhi, but that is a question you should put to him,” Chidambaram said, when asked if he would serve again in a government led by the party's heir apparent if Congress wins a third straight term in office. “The time has come for the torch to be passed on to a new and younger generation.”
 
Chidambaram dismissed the dazzling emergence of opposition figurehead and candidate for prime minister Narendra Modi on the national political stage as “largely media created”.
 
He conceded that the Hindu nationalist leader had united the rank and file of the Bharatiya Janata Party and “gained some traction among urban youths”, but said his party's challenger was someone with a “very, very checkered track record”.
 
Modi was chief minister of the state of Gujarat when deadly communal riots raged there in 2002. He has always vehemently denied charges that he turned a blind eye to the violence, and a Supreme Court inquiry found no evidence to prosecute him.

Tackling subsidies
 
An urbane Harvard-educated lawyer now in his third stint as finance minister, Chidambaram is widely seen as a business-friendly reformer.
 
However, the weak coalition government of Prime Minister Manmohan Singh has struggled to push through reforms that might correct underlying economic imbalances, such as loosening strict labor laws and implementing a goods and services tax.
 
Chidambaram said a jump in spending on fuel and food subsidies must be tackled sooner rather than later as part of a series of steps to stabilize the economy. India imports nearly 80 percent of its oil needs and the rupee's drop has made government fuel subsidies more costly.
 
“On the government side, sooner [rather] than later we will have to address the issue of higher subsidies than budgeted, on both fuel and food,” he said.
 
Last month, the government shied away from raising diesel prices by close to 10 percent to offset the financial damage Of the weaker rupee. Oil subsidies are now estimated at more than 900 billion rupees ($14.5 billion) - nearly 40 percent more than budgeted - for the current fiscal year.
 
The finance minister is unlikely to announce sweeping spending cuts, but he said he may rein in spending by some large government departments and would rigidly enforce rules that make it hard for ministries to fully utilize designated funds. ($1 = 61.8450 Indian rupees)

You May Like

India PM Modi's party distances itself from religious conversions

BJP under fire for being slow to rein in hardline affiliate groups allegedly trying to promote a Hindu-dominant agenda by luring Muslims and Christians to convert to Hinduism More

Anti-Whaling Group Found in Contempt of Court

Radical environmentalists who threw acid and smoke bombs at Japanese whalers in the waters off Antarctica continue their campaign to disrupt Japan's annual whale hunt More

UN's Ban Urges End to Discrimination Against Ebola Workers

Ban was speaking in Guinea on the second day of a whistle-stop tour aimed at thanking healthcare workers of the countries at the heart of the epidemic More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Sudan School Becomes Target of Aerial Attacksi
X
December 19, 2014 12:45 AM
The school dropout rate is at an all-time high in Sudan's South Kordofan state because many schools have been destroyed during the three-year civil war between the government and SPLA-N rebel forces. Adam Bailes visited Sudan's Nuba Mountains' region and reports many children are simply too scared to go to school
Video

Video Sudan School Becomes Target of Aerial Attacks

The school dropout rate is at an all-time high in Sudan's South Kordofan state because many schools have been destroyed during the three-year civil war between the government and SPLA-N rebel forces. Adam Bailes visited Sudan's Nuba Mountains' region and reports many children are simply too scared to go to school
Video

Video VOA Reporter Tours Devastated Peshawar School

Islamist militants wearing military uniforms and strapped with explosives attacked a military run school Tuesday in the northwestern Pakistani city of Peshawar. At least 141 people were killed in the horrific attack, most of them young students. VOA reporter Ayaz Gul visited the devastated school and attended the funeral of the principal who courageously tried to save her students from the deadly attack.
Video

Video Nigerians Fleeing Boko Haram Languish in Camp Near Capital

In its five-year effort to impose Islamic law in northeastern Nigeria, the Boko Haram extremist group has killed thousands of people and forced hundreds of thousands to flee. Some of those who ran for their lives now live in squalor on the edges of the capital, Abuja. Chris Stein reports for VOA.
Video

Video Putin Says Russian Economy Will Emerge Stronger

Russian President Vladimir Putin has said his country's sinking economy will not only recover but also become stronger, despite falling oil prices and Western sanctions over Ukraine. VOA's Daniel Schearf reports.
Video

Video Detained Turkish Journalists Follow Teachings of US-Based Preacher

The Turkish government’s jailing of critical journalists has sparked international condemnation and is being seen as an effort to undermine the followers of an ailing Turkish preacher based in the United States. VOA religion reporter Jerome Socolovsky has more.
Video

Video ‘Anti-Islamization’ Marches Increase Tensions In Germany

Anti-immigrant rallies in Germany have been building in recent weeks, peaking Monday night in the city of Dresden where tens of thousands of people turned out to demonstrate against what they call the ‘Islamization’ of the West. Germany has offered asylum to more Syrian refugees than any other country, and this appears to have set off the protests. Henry Ridgwell reports from London.
Video

Video Aceh Rebuilt Decade After Tsunami, But Scars Remain

On December 26, 2004 there was an earthquake in the Indian Ocean so powerful it caused the Earth’s axis to wobble a few centimeters. Onshore on the island of Sumatra, the resulting tsunami was devastating. A decade later, VOA Correspondent Steve Herman reports from Banda Aceh, Indonesia, where although there is little remaining evidence of the physical devastation, the psychological scars among survivors remain.
Video

Video Refugees Living in Kenya Long for Peace in the Home Countries

Kenya is host to numerous refugees seeking safe haven from conflict. Immigrants from Somalia face challenges in their new lives in Kenya. Ahead of International Migrants Day (December 18) Lenny Ruvaga has more for VOA News from the Kenyan capital.

All About America

AppleAndroid