Union Finance Minister Arun Jaitley on Saturday promised more steps to cut the current account deficit (CAD) and bolster foreign exchange inflows, seeking to calm frayed nerves amid a stock market crash and falling rupee.
Jaitley said India would continue to be the leading destination of foreign direct investment despite the adverse global situation, but added there could be some transient problems. He reiterated that maintaining fiscal prudence was one of the top priorities of the government. “You can afford to take liberties only when fiscal position is strong and not otherwise,” he said.
The finance minister said the CAD was linked to global oil prices because foreign exchange was mostly spent on crude oil. “The way (crude oil) prices are going up, there will be some adverse impact on the CAD. Now we are trying our best to take measures to narrow it. Some more steps are likely but there are two factors… the external one is oil prices, and second is the policy with the United States, which is leading to hardening of the dollar itself, therefore adversely impacting all currencies of the world,” he said speaking at HT Leadership Summit in the national capital.
The government recently raised import duties on 19 items, including consumer electronics, diamonds, jewellery, jet fuel and leather footwear, to curtail the widening CAD. It also announced measures to finance the expected increase in the CAD. These included easing investments by foreign portfolio investors in corporate bonds, reviewing mandatory hedging conditions for external commercial borrowings (ECBs), allowing the manufacturing sector to avail of ECBs, and making it easier to go for masala bonds.
The trade deficit, which is the biggest part of the CAD, was $17.4 billion in August, lower than the $18.2 billion seen in July. So, in the two months, the trade deficit rose to $35.6 billion after it stood at almost $45 billion in the first quarter of the current financial year.
Experts say the CAD will come under pressure now.
On the Supreme Court’s verdict on Aadhaar, Jaitley said a new legislation could restore the mandatory linking of the biometric ID with mobile phones and bank accounts. He, however, did not say whether the government would table such a Bill.
The Supreme Court had last month upheld the constitutional validity of Aadhaar, the 12-digit biometric based unique identity number, but restricted its use by private entities like telecom operators for verifying identity of mobile phone user.
“Aadhaar is not a citizenship card. Because after all you have a system where you give a lot of government money in form of various support and subsidies to all kinds of people. That was the principle objective of Aadhaar,” he said.
The Supreme Court, he said, upheld most of what Aadhaar does. “What had not been upheld falls in two categories. One is the principle of proportionality that Aadhaar will help in these cases and then do it by an appropriate law. So the whole argument which was given that private companies can’t use it, there is Section 57 which says you can authorise others either by law or contract. So what has been struck down is by contract,” he said.
The finance minister also took on Congress President Rahul Gandhi and his “reluctant” allies for not cutting taxes on petroleum.
On a Facebook post titled ‘The oil prices and the hypocrisy of the Opposition’, Jaitley accused the government critics of doing a ‘volte face’ by terming the cut in petrol and diesel prices by Rs 2.5 per litre by the Centre as ‘bad economics’.
He said states collected extra taxes when oil prices went up since their taxes were ad valorem.