Union Budget expected to woo foreign investors

P Chidambaram

India's fiscal deficit target now stands at a revised 5.3 percent of GDP this fiscal year. Chidambaram has said he wants to get that down to 4.8 percent in 2013/14.

Economists in the poll were split on the chances of overall government borrowing in 2013/14 being reduced from 5.7 trillion Indian rupees ($105 billion) in 2012/13.

BRINGING BACK FOREIGN INVESTMENT

Once considered a rising star in Asia, the Indian economy has lost its shine in recent years. Preliminary estimates released earlier this month showed growth dwindled to an annual 5 per cent rate in the current fiscal year to March. If confirmed, that would be the slowest growth rate that Asia's third largest economy has clocked in a decade.

The poor performance is reflected in the rupee's depreciation, as the current account deficit has widened due to weak exports and slack inflows of foreign direct investment.

The Indian currency has lost 18 per cent against the dollar since the start of 2011, though the decline was limited to 3.5 per cent in 2012. The rupee has gained 1.2 per cent since the start of this year.

The currency's weakness reflects India's widening current account deficit due to weak exports and slack inflows of foreign direct investment.

A weak global economy, particularly among major trading partners like the euro zone, is partly to blame for India's poor performance lately.

But the government's hesitancy implementing reforms to attract foreign capital, and a ballooning current account deficit that has left India vulnerable to a potential downgrade in its sovereign debt to junk bond status.

To arrest the slide in investment, the government announced major reforms late last year that included, among others, permission for global retailers to set up shop in India and allowing foreign investment in aviation and broadcasting.

"By and large we expect investor confidence to grow rather than ebb given that...the Ministy of Finance has got its sights set on rather achievable goals and have put a lot of clarity on the direction they want policy to take," added Mizuho Corporate Bank's Varathan.

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