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The finance ministry has directed the Reserve Bank of India to take all possible steps to curb speculation in the forex market.

As a first step, the RBI had decided to intervene continuously to keep the exchange rate stable, announced Finance Minister Palaniappan Chidambaram at the economic editors conference in New Delhi on Wednesday.

Chidambaram said he had been discussing the exchange rate issue with the RBI governor and both were of the view that the exchange rate should be determined by the market forces.

He said the apex bank would ensure that the exchange rate remained more or less stable and that excessive speculation did not take place in the market.

He said the Reserve Bank had issued a detailed press note on Wednesday in this regard.

Chidambaram said the recent movements in the exchange rate were due to disturbances in the Southeast Asian markets. He pointed out that the fixation of band was suggested by the Tarapore Committee, on which no decision has been taken so far.

Delving on the state of the economy, the finance minister said there was a long way to go to correct the fiscal balance which he hoped would be around four per cent of the gross domestic product at the end of current financial year.

He said there were slippages in the fiscal deficit targets in the past. Even last year, the fiscal deficit was more than five per cent against the target of below five per cent.

Chidambaram pointed out the steps taken by the government to reduce the fiscal deficit, including raising the tax to GDP ratio in the last two budgets. There was buoyancy in the collection of taxes and even in the first quarter, the tax collections increased by around 33 per cent in the current financial year, he said.

The finance minister expressed his concern over the slow pace of implementation of infrastructure projects, specially in the power sector.

Chidambaram said work in other sectors of infrastructure has been progressing at slightly better pace. In the road sector, the government is expected to start tender work within three months.

Some major decisions had already been taken in the petroleum, mining and coal sectors also, he said, adding that a good start had been made in the ports sector.

Chidambaram stated that the government had also taken a series of steps to amend various financial laws. The government will bring five bills in the Lok Sabha soon and these should become the laws before the end of current financial year.

The amended Companies Act and Income Tax Act had already been introduced in Parliament. The Foreign Exchange Management Act, and Money Laundering bills would also be introduced in Parliament soon, he added.

Chidambaram declared that the economy had reached the stage where it was possible to attain a seven per cent growth on a sustainable basis. For the past three years, the country has been achieving a similar growth rate, he added.

The finance minister said the higher growth was achieved because of liberalisation, opening up of trade and using the price mechanism.

Chidambaram said the agriculture sector had done better in the last two years. Industrial sector was passing through sluggishness.

On the investment side, he said it was a fact that in the current year, disbursements were lower but sanctions were higher. He attributed this to the downswing in trade cycle.

Chidambaram said in the last two budgets, the government had reduced income tax rates substantially and changed the excise structure. Service tax was introduced in more than a dozen sectors. The actual results of the reforms in the tax structure will be felt over the next two years, he added.

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