FRMBA target to be missed;possible lowering of interest rates,excise

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New Delhi, Nov 24 (UNI) Saying that the Indian economy is likely to clock a growth rate of seven to eight per cent this fiscal, Finance Minister P Chidambaram today hinted at a number of policy initiatives, including India seeking a doubling of developmental assistance from the World Bank to six billion dollars, possibility of moderation in interest rates, the government not going in for issuance of new set of oil bonds if international crude prices stabilise at the current levels and slippage on the fiscal deficit target.

Inaugurating the annual Economic Editors Conference here, Mr Chidambaram said the government is willing to look into the question of excise duty cuts on a case by case basis, but said the call for a cut in petrol and diesel prices has to be taken by the Minister for Petroleum and Natural Gas.

The Finance Minister said he has received a mixed reponse to his call to the industry for cutting prices and described as unfortunate that private sector banks have not reduced interest rates.

Mr Chidambaram said meeting the targets for fiscal and revenue deficit laid down by the Fiscal Responsibility and Budget Management Act (FRMBA) would be delayed by an year in view of the difficult economic situation, necessitating additional expenditures.

He said this may require amendment by Parliament in this regard.

The fiscal defecit target for the year has to be brought down to less than three per cent and revenue deficit target at one per cent this fiscal.

Fulfilment of the targets laid down by the FRMBA Act may now be possible only in 2009-10.

The Finance Minister said the target for direct taxes will be met and as far as indirect taxes are concerned, there may a shortfall on the excise primarily due to slower industrial growth.

However, he said the CBEC has assured him that the shortfall on the excise front will be met, additional revenues being generated from service tax.

Mr Chidambaram said the economy will "bounce back" to nine per cent growth in the second half of next year.

He said the RBI will have scope to cut borrowing and lending rates further as inflation approaches a level "we can live with".

"If the rate of inflation continues to decline, the policy rates may also moderate and the bias in favor of growth may deepen," he said.

"The positive impact may get reflected through a moderation in inflation, improving corporate profitability through input cost reductions and increasing their internal accruals," Mr Chidambaram said.

The Finance Minister said it was a misnomer to say that the economy was in a recession. He said "Recession means two successive quarters of contraction. We are nowhere near recession," he said.

"There will be a slowdown, but we will remain the second fastest growing economy in the world," the Finance Minister said.

"The growth estimate for the first quarter of 2008-09 is 7.9 per cent and the second quarter will, undoubtedly, show high positive growth. Therefore, we must banish the thought of recession, he said.

The government may not have to issue more oil bonds to State-run oil firms in the rest of the fiscal year to March if crude oil prices remain at current levels, Mr Chidambaram said.

The Finance Minister said India has sought doubling of developmental assistance from the World Bank from three billion dollars to six billion dollars. He said if this level of assistance is granted then it would add a significant amount of fiscal stimulus to the economy and serve as contracyclical measure to the global slowdown.

He said a doubling of assistance for the next four years will also provide a big push to the infrastructure sector.

The Finance Minister in a nearly two-hour plus session answered a host of questions pertaining to global slowdown, the oft repreated charges made by the left parties, State governments making unrealistic promises on selling rice and wheat at low prices and private sector banks not adhering to the governments exhortion to reduce interest rates.

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