(Adds details from Citi note, FII investment cap)
By Clement Tan
HONG KONG Jan 22 India's economy will grow "no
better than" 5.7 percent in the current fiscal year but will
regain traction in 2013/2014, the finance minister said on
Tuesday, committing to fiscal prudence in the budget and
brushing off threats of a downgrade.
P. Chidambaram was meeting international investors in Hong
Kong as part of a four-city tour to try and boost capital flows
into Asia's third-largest economy. He spoke to the media
afterwards and Citi reported some of his presentation.
Chidambaram said he expected the economy to grow by no more
than 5.7 percent in the current fiscal year ending in March, its
worst perfomrance in a decade, but predicted it would pick up in
the following year beginning in April, expanding by 6-7 percent.
Chidambaram is due to present the 2013/14 budget on Feb. 28.
It is probably his last budget ahead of general elections due
next year and he is under political pressure to be generous to
"The market has been cautious leading into what is seen as
an 'election/populist' budget in February 2013. The finance
minister was decidedly more positive," Citi, which hosted the
meeting, said in a note.
"He suggests the fiscal deficit target will be met, taxes
will not be raised and while policy will and should be biased
towards the poor, the budget will offer a lot."
The minister sought to allay fears India was in danger of
losing its investment-grade credit rating and being downgraded
to "junk" status, as policymakers struggle to revive economic
growth, curb subsidies and hold down the fiscal deficit without
triggering a backlash ahead of 2014 elections.
"I was not worried when I took over (as finance minister)
in August 2012, and after so many steps that we have taken, I
think I should be less worried. In fact, all of us should be
less worried. There should no case whatsoever for anybody to
downgrade India," he told reporters.
"The silver lining is we are able to finance the current
account deficit without reserves. Thankfully there are enough
inflows of FDIs and FIIs (foreign institutional investment) and
companies are able to raise money abroad under external
Fitch and Standard and Poor's last year cut their ratings
outlooks for India to "negative", citing its slowing growth and
bloated deficit and putting it in danger of being the first of
the BRICs grouping of fast-growing economies to be downgraded to
Addressing investors, he said the government would raise by
$5 billion each the caps on foreign institutional investors
holding government and corporate bonds, Citi said in a note
after the meeting.. This was in line with market
expectations, but has not yet been formally announced by the
Securities Exchange Board of India.
International investors will be allowed to hold up to $15
billion of government bonds and $25 billion in corporate bonds,
the minister was reported to have said during the meeting.
India's economy extended its long slump in the
July-September quarter, highlighting the urgency of politically
difficult reforms to revive activity.
Since Chidambaram was appointed on July 31, the government
has opened up the retail sector and pushed reforms to allow more
foreign investment in its insurance and pension sectors and
simplify its tax laws. The benchmark BSE index has
risen 16 percent in that time.
Last week, the government allowed state fuel retailers to
raise prices to gradually align them with market rates and help
cut its fuel subsidy bill.
The minister assured investors that the government's top
priority is curtailing spending in the short term, while in the
medium-term it aims to cut the fiscal deficit by 60 basis points
per year, reducing it to 3 percent in four years from an
expected 5.3 percent this fiscal year, the note from Citi said.
He said there was also room to sell off more state assets to
ease fiscal strains. He forecast the government would raise $5
billion from such divestments in the current fiscal year and
said he had approval for further sales in the next few years.
Chidambaram will also meet investors in Singapore, London
and Frankfurt over the next week.
"The finance minister was both clear and confident of what
needs to be done, how and when it will be done, and timelines,"
said a research note released by Citi said.
(Additional reporting by Frank Jack Daniel and Manoj Kumar in
New Delhi, Rafael Nam in Mumbai; Editing by Kim Coghill and Ron