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FinMin seeks to restore confidence of FIIs, assures to cut deficit by 60bps for next 4 yrs

23 Jan 2013 Evaluate

Reassuring global investors that the government remained committed to pro-growth policies and reforms, Finance Minister P Chidambaram assured foreign institutional investors (FIIs) that the government will stick to the 5.3% fiscal deficit target for the current year and also aim to reduce the deficit by 60 basis points in each year for the next four years till it reaches 3%.

Further, Chidambaram expects the economy to grow by no more than 5.7% in the current financial year ending in March, but predicted it would pick up momentum in the following year beginning in April, expanding by 6-7%.

These comments were made by the finance minister after meeting investors in Hong Kong as part of a four-city tour to try and boost capital flows into Asia's third-largest economy. The minister also sought to alleviate fears that India was in danger of losing its investment-grade credit rating and being downgraded to ‘junk’ status, since policymakers struggle to revive economic growth, rein in subsidies and cut down the fiscal deficit without triggering a backlash ahead of 2014 elections.

Last year, Fitch and Standard and Poor's had cut their ratings outlooks for India to ‘negative’, citing its slowing growth and swollen deficit and putting it in danger of being the first of the BRICs grouping of fast-growing economies to be downgraded to sub-investment-grade status.

Till now, 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. Last week it also allowed state fuel retailers to raise diesel prices to gradually align them with market rates and help cut its surging fuel subsidy bill.

By adding further, the finance minister said there was also room to sell-off more state assets to ease fiscal burden. He estimates the government would raise $5 billion from such divestments in the current financial year and said he had approval for additional sales in the upcoming years.

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