Embattled Indian government vows no pre-poll giveaways
New Delhi (AFP) - India's embattled government said Wednesday it would stick to the "path of fiscal prudence" in the run-up to next year's elections, dismissing market worries of a slew of deficit-busting giveaways to sway voters.
The assurance by Finance Minister P. Chidambaram came after voters unhappy over sharply slowing growth and corruption scandals delivered a string of defeats to the ruling Congress party in recent state elections.
On Tuesday, global ratings agency Fitch voiced concern that "a steeper political struggle to pull in more votes" might prompt the government to unleash a populist spending spree before the polls due in May.
But Chidambaram told an economics forum in Delhi "there will be no compromise on the decision to walk the path of fiscal prudence".
The government will "contain the fiscal deficit step-by-step, year-by-year, until we reach the goal of three percent of gross domestic product in 2016-17", he said.
The government has set a fiscal deficit target of 4.8 percent of GDP for this financial year, unchanged from last year, which Chidambaram called a "red line".
In good news for the government, figures Wednesday showed India's trade gap narrowed in November, easing pressure on the current account deficit -- the widest trade measure embracing goods, services and investment income.
The current account deficit ballooned to a record $88.2 billion in the last financial year, setting off foreign investor alarm bells, but Chidambaram said it would fall to $56 billion this year.
Merchandise exports rose by 5.9 percent year-on-year in November to $24.6 billion, spurred by a weaker rupee, while imports tumbled by 16.4 percent to $33.8 billion, their lowest in four years.
Gold and silver imports slid a massive 80.49 percent to $1.05 billion as a result of steps to curb precious metal purchases and close the trade gap.
Meanwhile, central bank governor Raghuram Rajan said at the forum India is "better prepared" for US stimulus tapering than when the possibility was first mooted earlier this year.
An unexpectedly strong US November employment report has fanned speculation the Federal Reserve may decide to start paring stimulus next week.
"We're much better prepared to deal with any possible tapering" but not "complacent", Rajan said.
"We have a stronger (foreign exchange) reserve position. We have shown we can raise money if needed. And our current account deficit is in a considerably better position".
Expectations earlier this year that the US would roll back stimulus sparked a capital flight from India and other emerging markets as investors repatriated assets to the US chasing higher returns.
The predictions of Fed tapering proved premature but India, with its weak public finances and growth at a decade-low of five percent, was badly hit and the rupee slid to a record low in August.
Since then, the rupee has retraced some losses, helped by emergency steps to buttress the currency.
Economic growth also "appears to be stabilising though it is too early to say it has bottomed" Rajan added, projecting expansion of five percent again this year.
He said the central bank, which has hiked interest rates twice since September, remained firmly fixed on taming stubborn inflation despite pleas from business to loosen monetary policy to boost growth.
