INDIA: MONTHLY ECONOMIC SUMMARY: AUGUST 2006
Fiscal Deficit target will be met, says FM: According to the Ministry of Finance quarterly review of government finances tabled in Parliament on 27 August, the gross fiscal deficit (GFD) during April-June 2006, at Rs 777.4 bn, was 42.6 per cent higher than the Rs 545.1 bn in the same period in the previous fiscal. The high expenditure is mainly due to two major programmes, where 50 per cent of the funds to be devolved upon states are given in the month of April. However, Finance Minister expressed confidence of meeting the fiscal and revenue deficit targets for the financial year. The GFD of the Centre was estimated to be 3.8 per cent of GDP
Review of Caps on SEZs: A decision was earlier taken by the empowered Group of Ministers (GoM) on SEZs – headed by Defence Minister – to limit the number of zones to 150. However, with as many as 200 fresh proposals having been submitted, Minister for Commerce & Industry, Kamal Nath has sought an urgent need to review the cap of 150 zones for the country. It is estimated that the pending proposals involved a potential investment of at least $5 bn. Seeing this potential, the empowered GoM on 23 August decided not to impose any further caps on the number of zones that can be set up in the country. The decision overrode the objections raised by Minister for Finance, P. Chidambaram who pointed out that the revenue losses arising out of tax give-aways total to a staggering Rs 700 bn. Refuting this, Kamal Nath indicated that the zones would lead to revenue gains of around Rs 440 bn over the next 5-10 years besides creating lakhs of jobs. Minister for Communications and IT, Dayanidhi Maran also pointed out that imposing a cap on SEZs would send the wrong signal to investors, at a time when foreign investors are looking favourably at India as an investment destination.
Inflation rises: Inflation as measured by the wholesale price index rose to 4.92% for the week ended 19 August from 4.71% for the week ended 22 July. Inflationary pressures are mainly reflecting the pass-through of the hike in administered prices of petrol and diesel and increases in prices of food items including the seasonal spike in prices of fruits and vegetables.
Exports continue to rise: Merchandise exports during April-July 2006 recorded an increase of 38% in dollar terms - $37.70 bn compared to $28.13 bn in the corresponding period previous year. Exports during July 2006 maintained the robust growth of 41%, having increased to $10.17 bn from the level of $7.23 bn during July 2005. Imports during July 2006 showed a sharp increase of 42.8% and were valued at $14.13 bn over the $9.90 bn recorded in July 2005. Oil imports during April-July 2006 valued at $18.53 bn showed a 43.23% increase over that in the same period previous year ($12.94 bn). The trade deficit is estimated at $16.71 bn, an increase on the $13.97 bn deficit during April-June 2005.
No FDI in retail if it hits small players: On 9 August,Kamal Nath told the Confederation of All India Traders that the government has ensured suitable safeguards against adverse impact on small traders by allowing FDI only in retail of “Single Brand” products, the Minister said, adding that the main concern was not foreign vs. domestic, but big vs the small.
FOREX reserves stable: There was only marginal increase in the total foreign exchange reserves, including gold and SDR, and it remained at $ 163.36 bn for the week ended 18 August 2006.
S. Deepa, Economic section – Extn 2667, British High Commission, New Delhi, September 2006