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Rupee convertibility not before 2009: Chidambaram

Written by: Staff

New Delhi, Apr 7 (UNI) Ruling out capital account convertibility before 2009 and a rise in the interest rates, Finance Minister P Chidambaram sought to allay apprehensions that the proposed labour reforms would result in ''hire and fire'' and expressed confidence about India hitting double digit economic growth, fuelled by higher farm output and growing investment.

Dwelling at length on fiscal and trade and economic issues in an interview to ''The Straits Times'', the Finance Minister indicated that there would not be any change in the personal and corporate tax structure and said no market ''bubble'' had been brought to his notice in the light of the soaring Sensex.

Strongly defending the steep duty cuts for small car manufacturers which promptly responded by slashing prices, Mr Chidambaram said the move was aimed at improving transportation in rural areas.

Ruling out a free trade agreement (FTA) with China in the near future, the Minister said the government would first wait for a rise in the bilateral trade with Beijing.

Asked how long would it take for rupee convertibility, he said it would have to wait until the revenue deficit was wiped out and the fiscal deficit brought down to three per cent. ''Which means, not earlier than 2009,'' he added.

Further, he was not sure what the S S Tarapore committee, appointed to suggest a roadmap by July this year, would recommend.

''I don't think in any event we will be ready until'' the fiscal goals were met.

Mr Chidambaram said he did not expect corporate lending rate to ''even touch'' banks' prime lending rate (BPLR) and felt RBI was likely to take steps to inject greater liquidity, easing liquidy conditions.

Asked whether some hard decisions were expected on labour reforms after the ongoing assembly elections, Mr Chidambaram said nobody had told him that labour policy was a hindrance to industrial growth. ''It's an exaggerated problem. No country accepts hire and fire, not even the US or Japan. Point is, does the employer have some flexibility? There is some rigidity in the industrial disputes Act. Ministry of Labour is addressing it, but it needs a consensus. We are working on it.'' To a question on from where the ''extra impetus'' would come, the Minister mentioned agriculture, huge investments and manufacturing as the primary sources.

''By increasing acreage under assured irrigation, output of agriculture will increase. The second impetus will come from the investments that are in the pipeline. Huge investments are taking place. According to RBI figures, non-food credit growth is rising at 30 per cent. So, growth will come from manufacturing, it will come from agriculture.'' To a remark that India was banking too much on the ''demographic dividend'' to fuel growth instead of going for a fresh burst of reform, he said he was not going to wish away the factor.

Further, ''reform is not what applies to the capital market alone...or when you make it easier for foreigners to invest in our stocks. If you spend money to expand irrigation, to build rural infrastructure, that is not noticed by the reformers. But those are as much reforms.'' Asked about the importance of Special Economic Zones as part of the strategy to ramp up investments for growth, he said, ''They are important, but I don't think you should overestimate their importance.'' On FTAs, he said one had to be very careful in assessing their overall advantage. FTAs should be divided into two categories -- one, with our immediate neighbours' concerns as the largest economy in the region. And another will be how we treat FTAs with developed countries...Asean, Japan, South Korea, Singapore. ''There we have to exercise great caution.'' About the tax structure, he said the rates were ''extremely comparable and extremely competitive. Secondly, effective tax rates for the private sector is only 22 per cent after providing for all the exemptions.''


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