In an exclusive interview to CNBC-TV18 in Japan, the finance minister reiterated the potential for India to grow at 8 percent thanks to a strong savings rate, a regulatory framework based on rule-of-law and a government keen on implementing reforms that will address the various concerns regarding infrastructure and taxation.
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"There is room for the RBI to cut reforms with a fall in headline inflation.However consumer price inflation is sticky and the governor has to keep the current account deficit (CAD) in mind before lowering interest rates , " he said.
Highlighting the need to tackle the current account deficit, Chidambaram added that a high current account deficit has forced the government to redouble effort to attract foreign investment.
"For example, last year we had nearly USD 46 billion of FDI. I said in a meet yesterday that India can easily absorb USD 50 billion of FDI annually. Nevertheless, the CAD will be high for quite some time. The answer to the reduce CAD is to increase exports."
The finance minister also empahsised the increased role allocated to the private sector in contributing to the setting up of India's infrastructure.
Chidambaram revealed that he did not have to much to sell the investment opportunities in India. "The Japanese know India and many Japanese companies' have been in India for nearly 100 years. All I have do is a bit of handholding and explaining."
Below is an edited transcript of the interview on CNBC-TV18
Q: You have been around the world to tell investors that India is open for business. After spending a day in Japan, what have the investors told and which group of investors do you think are eager to invest in India?
A: I have met with the Japan International Cooperation Agency (JICA), Japan Bank for International Cooperation (JBIC), Japan External Trade Organization (JETRO) and Prime Minister Shinzo Abe. Though there is a larger meeting with investors and industry leaders later in the day, I did meet a few investors and industry leaders yesterday.
Pension funds, insurance companies and large asset management companies are some of the investors very keen to invest in India. There is also a great deal of interest among banks and insurance companies to gain a footprint in India.
India has very transparent rules and in the financial sector has a lot of room for new participants. And the impression I received is that they are extremely positive about India a safe investment destination and offering attractive returns as compared to returns in Japan.
Q: Japanese companies have been consistently investing in India and senior representatives of the Japanese corporate world say that India is particularly attractive at this time as a counterweight to China. Is this the feedback you received from Japan Inc?
A: They haven't told me in such explicit terms, but I also read and observe what is going on in the rest of the world. Japanese companies and investors would like options other than China for a variety of reasons and India offers a huge market that is governed by rule of law and that makes India as attractive, if not better, than China.
Q: Investors love to hear from you because you have been such a strong proponent of reform. At the same time investors have expressed reservations because your government relies on a coalition and are concerned about the legislative process. How do you address these concerns?
A: We know how to manage a coalition. In Europe, every country has a coalition government. In Japan, there have been coalition-governments in the past. So, coalition-governments are not novel or unprecedented. We have managed the coalition for over nine years now. In these nine years, we have enacted many important Bills. None of the important reform measures have been reversed. Managing a coalition is something that we are getting used to in India. Investors should look to the government as a whole and not worry about coalition.
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