Nineteen days before presenting the Budget, Finance Minister P Chidambaram today used his packed schedule in the country's commercial capital to build confidence about the economy. He dismissed the Central Statistical Office's (CSO's) growth projection, saying the economy was already seeing green shoots and was likely to grow at a higher rate of 5.5 per cent this financial year. It could improve to 6-7 per cent in 2013-14.
Addressing the stock broker community at the launch of MCX-SX, he emphasised the need to bring in more retail investors into financial instruments and said he would make the Rajiv Gandhi Equity Savings Scheme (RGESS) more attractive in the Budget. The minister also said the financial regulators should simplify the know-your-customer (KYC) requirements and make those uniform.
He asked banks to improve their operational efficiency to bring down interest rates and hand-hold companies facing financial stress. Banks should give impetus to consumer loans, especially home and educational ones and put pressure on builders to cut prices as a step to push demand, he said during an interaction with senior State Bank of India executives.
He also said it would be difficult to retain the current employment levels if the economy did not return to seven per cent growth. "For India, eight per cent growth rate is imperative - seven per cent to retain the existing level of employment and eight per cent to absorb new people," he said.
He made his displeasure with the CSO estimate clear by saying the calculations used were not accurate. "I know all of us are concerned about the low growth reported by CSO. Many in the government believe the data, based on the which CSO projected a growth rate of five per cent is dated," he said.
"CSO has extrapolated the data for the period April-November into the year. That would be normally correct when the trend line continues in the same directions. But when the trend line changes, extrapolation is not the method the statistician should follow to project the future."
Chidambaram said the economy was beginning to see an upturn, albeit at a very slow pace. "It is not a V-shape upturn. It is a very long and shallow U. In the second half of this year, there are indications of green shoots in the economy. Going forward, we believe it will return to 5.5 per cent," he said.
Chidambaram, who formally launched RGESS in a separate function organised by BSE, said different sets of regulations to invest in financial products were putting off investors.
"We have too many regulations. It is important KYC norms for all intermediaries under a market regulator converge and become one set of norms. We cannot have mutliple KYC norms for intermediaries and participants under one regulator. And worse, different sets of norms between different regulators," said Chidambaram.
The finance minister said it was very difficult for a bank account holder to open a demat account. He said the lack of KYC norms was encouraging investors to buy gold coins. "I want you all, especially the regulators and heads of all these bodies to sit back and say why are we making life more complicated," he said.
On RGESS, Chidambaram said he would bring about changes in the rules to make the scheme more attractive to retail investors. "Concerns are being raised the scheme is too complex for a small investor to understand. Some pointed out the provision of 50 per cent of the contribution up to Rs 50,000 to be permissible as deduction was not an adequate incentive," he said.
He asked regulators to make attempts to prevent a crisis rather than act after one broke out.
"The crisis of 2008 can be attributed to the fact that the innovators remained one step ahead of the regulators. I would urge regulators remain a step ahead of innovators. If innovators employ two nerds, regulators must employ three," he said.
Chidambaram, who will present the Union Budget later this month, also raised concerns over high non-delivery-based trades and export of trading to the overseas market.
"Perhaps it is in the nature of the stock exchange that the majority of the trades are non-delivery based but we must find out how significant number of trades end in delivery," he said. "In the case of options (trading), we find that the market is shifted overseas. "
"These are the things which are engaging government attention. We should find ways and means to bring the option market back to India or at least substantial portion back to India," he said.
Highlights of the FM's speech in Mumbai
Growth: India could grow at 5.5% in FY13, against CSO's estimate of 5%; target of 6-7% growth next year and 7-8% in FY15
Employment: Economic growth of 7% must to retain current employment levels
RGESS: Norms for tax-saving RGESS to be made simpler in Budget
KYC: There is need for a uniform know-your-customer regulations across asset classes
Options: Need to bring back options market to India
Realty prices: Banks should put pressure on property developers to cut prices.