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ENS ECONOMIC BUREAU
MUMBAI, JULY 15: Union Finance Minister Yashwant Sinha on Thursday expressed concern over the ballooning fiscal deficit and termed it the most intractable problem being faced by the country. The Finance Minister - who was greeted by a record jump in Sensex to the 4810 level - said the impact of the Kargil crisis on government expenditure was still being worked out.
"The government is still in the process of assessing the cost," he replied to queries on the Centre's plans to levy a "Kargil tax" to mobilise Rs 800 crore. Media reports on Wednesday had put the expenditure arising from the Kargil conflict at Rs 1,500 crore. "It will have an impact on the budget of the government of India... therefore we have to think in terms of keeping fiscal deficit within reasonable limits," he said while addressing the Indian Merchants Chamber in Mumbai on Thursday.
He reiterated that fiscal deficit had crossed the boundaries it should not have crossed. The problem could be tackled if every citizen gave his due to thegovernment and society, he added. On government borrowings, he said it was too early to say if it had overshot this year's target.
He said it was time to usher the second phase an economic reforms and underlined BJP and its partners commitment to carry-forward the liberalisation process as "they understood it". Sinha was upbeat about the economy and said it was showing robust signs of revival. Corporates had shown good first quarter results and this was a sign that the revival would hold, he said.
On the record high by the Sensex on Wednesday, he termed it a "clear sign of revival" and said it was prompted by good corporate results and sound fundamentals. The market was kept depressed artificially by extraneous factors. Hitting out at international rating agencies he said, they had been proved wrong about India. Their downgrading had dampened sentiment but the fundamentals of the economy remained strong, despite predictions about a 1991 kind of crisis. "The markets have started going up ever since thebudget," he added. The Resurgent India Bonds had played a key role in bringing back confidence in the Indian paper, Sinha pointed out.
The feel-good factor which had come in after the second budget could not be stopped until Kargil. Fortunately, investors and FIIs had factored this very fast and foreign direct investment and FII investment continued to be good, he said. The process of reforms was irreversible and would continue whichever political formation came to power. "At this stage, economy and politics have become two separate streams. The juggernaut will continue. There may be differences in details but none in direction," he said referring to chambers of commerce demands for a consensus among political parties on reforms.
Inaugurating the Central Depository Service (CDS) promoted by the Bombay Stock Exchange, Sinha said the lack of good governance among corporates was the reason for investors shying away from the primary market and opting for debt. Savings were about 23 per cent of the GDP and thecapital market should be able to attract these fund if companies' governance was transparent, he said.
An active capital market was the key to economic revival. FII investment in the markets will continue to be good. Despite ups and downs in the market and the crisis in emerging markets, FIIs had continued to stay with the country - in March 1999, cumulative FII investments were USD 9.7 billion showing they were not "fair-weather friends", Sinha said. As on March 1999, 450 FIIs were operating in India.
Capital market reforms were an integral part of the reform process and around shares worth Rs 1,32,410 crore representing 25 per cent of market capitalisation were in demat form. The entry of CDS would inject competition in depository services. The depository should also reduce primary issue costs which were very high in India, he said.
Regarding greater powers to SEBI, he said the issue was under serious consideration and they would be given to SEBI soon. "Investor education is the collectiveresponsibility of the government, stock exchanges and SEBI," he said. The centre would soon introduce legislative measures for future and options in securities trading to provide hedging mechanism to investors. The introduction of interest rate swaps and forward rate agreements together with introduction of derivatives would attract more investors to the market, he added. It was also important to have a developed debt market for infrastructure funding, Sinha said.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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