Rupee will settle down: Chidambaram

New Delhi: With the rupee declining to a two-month low of 63 to a dollar, Finance Minister P Chidambaram Monday assured the domestic currency will stabilise.

"Rupee will settle down," he told reporters here.

In early trade today, the rupee fell to 63.33 to a dollar, its weakest since September 18.

The Indian currency started weakening since last week after the dollar purchase by oil companies was partly shifted to the market.

"Rupee weakness is due to OMC forex demand being moved to market. 30-40 percent of OMC demand has moved to market," Economic Affairs Secretary Arvind Mayaram had said last week.

The PSU oil companies are the biggest buyers of dollars, requiring USD 8-8.5 billion every month for the import of an average 7.5 million tonne of crude oil.

In August, the Reserve Bank had opened a special window to help the three state-owned oil marketing companies -- IOC, HPCL and BPCL -- to meet daily foreign exchange requirements and buy dollars directly from RBI.

The rupee has recovered over 8 percent since August 28, when it fell to a record low of 68.85 to the dollar. The gain in rupee had followed optimism that the US Federal Reserve would delay the tapering of its bond buying programme.

Govt will get over negativity, says Chidambaram

Finance Minister P Chidambaram has conceded that a potent mix of factors like slowdown of economic growth, dysfunction of the executive and corruption allegations has brought in a "high degree of negativity" but expressed confidence that the government would get over it.

"In the second five years of UPA, yes, there is, I can sense, I can see that the voter is at the moment negative. I can see that. I am blind if I don't see that. The reason is slowdown in economic growth , dysfunction of the executive, the cases of allegations of corruption, investigations that are going on, inflation and a slowdown in job creation. I think it is a potent and powerful mix, a potent mix of factors which has brought in a high degree of negativity. It is possible we may get over it."

"It is possible we don't get over it. It is a verdict we have to leave to the people. We have to accept whatever the verdict people will give," Chidambaram said at the "Thinkfest" event in Bambolim near Panaji.

Even in this slowdown in the last nine years, the country has clocked an average of 7.5 per cent growth.

"It is sad that at the end of the 10-year term, the growth has seen slowdown for a couple of years after having been high in the middle years and low in the last two years. I am doing my best. I will continue to do my best to see that there is an upturn before we go to polls," he said.

Chidambaram was replying to a question whether at the end of the second UPA term in the context of global pressures, CAG reports and high optimism in which the coalition was voted to power in 2009, there was today a lack of credibility for the government and that the prime minister was singularly lacking in leadership.

He shot back saying that he cannot remain in government and comment on the prime minister.

"That is not correct, that is not appropriate. I won't do it. He is the prime minister. I am a minister in his Cabinet. I have to accept his leadership and respect him. I am sorry, I cannot answer this question."

Rupee will settle down, assures Chidambaram

Finance Minister P Chidambaram took to reassuring investors and traders after the rupee declined to a two-month low of 63 to a dollar, saying the currency will stabilise.

In early trade on Monday, the rupee fell to 63.33 a dollar, its weakest since September 18.

"Rupee will settle down," the finance minister told reporters in the national capital.

The Indian currency started weakening again last week after the dollar purchase by oil companies was partly shifted to the market.

The PSU oil companies are the biggest buyers of dollars, requiring $8-8.5 billion every month for the import of an average 7.5 million tonne of crude oil.

"Rupee weakness is due to OMC forex demand being moved to market... 30-40 per cent of OMC demand has moved to market," Economic Affairs Secretary Arvind Mayaram had said last week.

The rupee has recovered over 8 per cent since August 28, when it fell to a record low of 68.85 to the dollar.

The Reserve Bank of India had in August opened a special window to help the three state-owned oil marketing companies - Indian Oil, Hindustan Petroleum and Bharat Petroleum - to meet daily foreign exchange requirements and buy dollars directly from the central bank.

The gain in the rupee's value had also followed optimism that the US Federal Reserve would delay the tapering of its bond buying programme.

Raghuram Rajan meets Chidambaram; discusses economic situation

Rajan discusses economic situation with Chidambaram

Ahead of the RBI's central board meet, the central bank chief Raghuram Rajan on Thursday met Finance Minister P Chidambaram and is understood to have discussed economic issues. "Our meeting was part of regular interaction that takes place between RBI and Finance Ministry," Rajan said after his hour long meeting with the Minister and Economic Affairs Secretary Arvind Mayaram. The Central Board of Reserve Bank will meet in Raipur on Friday to discuss key economic and financial developments. The RBI board meets at least once every quarter. The meeting would be chaired by Rajan. The four deputy governors are the official directors on the board, while Mayaram and Financial Services Secretary Rajiv Takru are the government nominees. There are also 11 non-official directors on RBI board. The meeting assumes significance in the wake of economic growth falling to a four year low of 4.4 per cent and current account deficit (CAD) at an elevated level of 4.9 per cent in the April-June quarter. While the government has been emphasising on measures for incentivising growth, the RBI in its policy review last month had hiked interest rates by 0.25 per cent. The RBI is scheduled to announce its second quarter policy review on October 29. Although Prime Minister Manmohan Singh and other government functionaries are expecting the growth to improve in the second half of this fiscal, Asian Development Bank in its recent report lowered India's growth projection for 2013-14 to 4.7 per cent. The economic growth rate slipped to a decade's low level of 5 per cent in 2012-13.

Finance oil imports via ECBs, Chidambaram tells Moily PTI

	Finance Minister P Chidambaram has dubbed Oil Minister M Veerappa Moily's claim of cutting 3 per cent in oil import bill through fuel conservation as "ambitious" and has suggested that more oil imports need to be financed through overseas borrowings to help cut current account deficit (CAD). Moily is set to launch a six-week mega fuel conservation drive on Tuesday, attempted to taper demand, thereby cutting oil import bill by $2.5 billion. He had outlined the drive as well as other measures in a letter to Prime Minister Manmohan Singh and Chidambaram on August 30 saying his initiatives would help save $20 billion in foreign exchange outgo. Responding to Moily's letter, Chidambaram wrote back last week saying the projected savings of foreign exchange on account of various measures proposed are optimistic, official sources said. "While it is recognised that a conservation campaign might result in some reduction in petro-product consumption, the estimates of savings projected at 3 per cent, over and above the proposed crude imports cut, appear to be ambitious," the finance minister wrote. Stating that only $3.75 billion out of the total crude oil import bill of over $160 billion is proposed to finance through External Commercial Borrowings (ECBs), Chidambaram said the possibility of increasing the ECB mode of financing should be explored. India paid about $144.29 billion last financial year for importing oil and this year the outgo is projected at $160 billion. Besides fuel conservation, Moily wants increase in crude oil imports from Iran, which is paid in rupee and will help curtail foreign exchange outgo. Chidambaram also wanted oil companies to be "encouraged to import crude oil from Iran in greater quantities and their imports from Iran be reviewed regularly". As US and western sanctions have blocked all payment routes, India pays Iran in rupees in a Uco Bank branch in Kolkata. Buying more oil from Iran would mean it pays more rupees than dollars it has to pay to other sellers. Sources close to Moily said the conversation drive - which includes the minister and his officials using public transport at least once a week - is aimed at sending a message for conservation down the line. Also, it is aimed at bringing about change in people's mindset and to act as a catalyst in improving public transport system. The government, meanwhile, is grappling with high CAD, the gap between inflows and outgo of foreign exchange. It has set a target to bring down the CAD, which touched a record high to 4.8 per cent of GDP last financial year, to 3.7 per cent level in the current financial year. Moily's other measures included asking state-owned oil firms to keep crude imports at 2012-13 level of 105.96 million tonnes that will save $1.76 billion in foreign exchange. The mega fuel conservation campaign - to limit its consumption growth to last year's 4.1 per cent level - is projected to help prop up the rupee, which has slid sharply against the US dollar this fiscal.

Before polls, govt sets up pay commission

all it a poll compulsion or genuine desire to help government servants, the Centre on Wednesday decided to constitute the seventh pay commission for its five million employees and three million pensioners — three years before the commission’s recommendations will actually take effect. “Prime Minister (Manmohan Singh) has approved the constitution of the seventh Central Pay Commission,” Finance Minister P Chidambaram said in a statement here.

The pay commission awards, analysts say, might entail a Rs 1-lakh-crore annual burden. But the finance ministry doesn’t want to think about it yet: “don’t pre-judge the issue; let the terms of reference be decided first”.

According to officials, the move might soon be followed by a decision to increase the retirement age of government employees to 62 years from the current 60.

A look at earlier instances suggests the constitution of the pay commission at this time could be aimed at reverting to the usual practice, breached when the sixth pay panel was set up. The Cabinet had approved setting up of the sixth pay commission in July 2006, and its recommendations came into effect retrospectively from January 2006. But, that was because the Bharatiya Janata Party (BJP) -led National Democratic Alliance (NDA) government, in power then, had initially refused to set up the commission. The Congress-led central government on Wednesday tried to beat the BJP, the main Opposition at present, on this count.

“NDA had rejected the legitimate formation of the sixth pay commission in 2003. The Congress set up the sixth pay commission in 2005 and now the seventh one in 2013,” Party general secretary incharge for communication, Ajay Maken, tweeted.

The NDA finance minister had said there was no need to constitute the sixth pay commission, as 50 per cent dearness allowance had already been merged with the basic pay.

Asked whether the fiscal consolidation exercise of the government would not be affected, as it was estimated the exchequer would take a hit of Rs 1 lakh crore due to the recommendations of the seventh pay commission, a senior finance ministry official said: “How can you estimate the burden on the exchequer. The terms of reference have yet to be decided.”

The year 2016-17 would be the terminal year of a five-year fiscal consolidation road map announced by the finance minister. By that time, the government aims to bring down the Centre’s fiscal deficit to three per cent of gross domestic product. In 2012-13, the first year of the road map, the deficit had stood at 4.9 per cent of GDP. The plan is to lower it further to 4.8 per cent this financial year, and then by 0.6 percentage points each year.

 

To a query on whether the government should be allowed to set up the commission — the model code of conduct would come into effect as Assembly polls are due in five states — the official said the decision had been announced, so setting up of the commission would not violate the election commission’s guidelines.

He said the department of personnel would now start discussions with staff associations of government employees for announcing the constitution of the commission, as well as its terms of reference. It would be set up in about a month’s time, he added.

According to the 2011 census, there were 725 million voters in India. The finance ministry tried to brush aside the view that the government had set up the commission to woo the eight million government employees, pensioners and, indirectly, their dependents ahead of general elections.

It rather said the commission had been set up three years in advance to ensure that the recommendations did not have to be implemented retrospectively and there wasn’t any sudden financial burden in a single year.

According to the finance ministry’s statement, the average time taken by a pay commission to file its recommendations is about two years. “Accordingly, allowing about two years for the seventh pay commission’s report, the recommendations are likely to be implemented with effect from January 1, 2016.”

Traditionally, pay commissions have been set up after every 10 years to revise the pay scales of central government employees. States also accept these recommendations for their employees after certain modifications. However, since the sixth commission, headed by Justice B N Sri Krishna, was set up three years later because of NDA’s initial rejection, the gap between the fifth and the sixth commissions had become 13 years. The seventh, being advanced by three years, could also differ from the usual 10-year pattern.

The key area that the sixth pay commission focused on was removing the ambiguity in various pay scales and reducing the number of scales. For that, it introduced running pay bands for all government posts. It had recommended pay hikes of 20-40 per cent and also suggested a new system of four pay bands with 20 grade pays which was accepted with minor changes.

It had also recommended the minimum basic pay of Rs 6,660 a month. However, that was increased to Rs 7,000 by the Cabinet. The financial implications on account of these recommendations were to the tune of around Rs 22,000 crore for 2008-09.

Plan spend may be axed again: Monte

higher subsidy burden and a shortfall in revenue receipts might force the government to lower its Plan expenditure this year, too, as it is determined to restrict its fiscal deficit to 4.8 per cent of GDP. The move may, however, pull down GDP growth, which fell to a four-year low of 4.4 per cent in the quarter ended June 2013.

Planning Commission deputy chairman Montek Singh Ahluwalia said a cut in Plan expenditure could be considered while finalising the Revised Estimates. Asked whether it was proposed that Plan expenditure be cut, he said: “If we are asked to do so, we will cooperate. Discussions usually start around November. The finance ministry has said the 4.8 per cent target for fiscal deficit is sacrosanct.”

A cut in government spending would come at the cost of growth. In the quarter ended June, growth was primarily aided by community, social and personal services, representing largely government spending. The category expanded 9.4 per cent, against 8.9 per cent in the year-ago period and four per cent in the quarter ended March this year.

Finance Minister P Chidambaram had said the target of reining in fiscal deficit at 4.8 per cent of GDP this financial year was a red line that wouldn’t be breached. In the first quarter of this financial year, the government’s fiscal deficit touched 10.49 per cent of GDP, standing at 62.8 per cent of the Budget estimate for 2013-14, against 51.5 per cent in the year-ago period.

In 2012-13, the government was able to rein in its fiscal deficit at 4.9 per cent, against the Budget estimate of 5.2 per cent, owing to a cut of Rs 92,000 crore in Plan expenditure. This year, however, the cut is unlikely to be so steep, as the Budget estimate is only 11.7 per cent higher than that last year.

Owing to the rupee depreciation and a rise in crude oil prices, this year, there would be a higher-than-projected burden for fuel subsidy and, to an extent, fertiliser subsidy. Besides, meeting the disinvestment target of Rs 40,000 crore would be difficult if the market situation doesn’t improve.

So far, receipts from divestment stand at only Rs 1,325 crore. Tax collections also face the risk of a shortfall. Continuing with its austerity measures announced last year, the finance ministry might also issue instructions for a 10 per cent cut in non-Plan expenditure and a ban on creation of new government posts.