Finance Minister P. Chidambaram today announced a slew of measures to defend the embattled rupee, including steps to boost foreign currency inflows and curb non-essential imports.
Public sector companies and banks have been allowed to raise fund overseas. Other measures include raising longer-term Non-Resident Indian Funds, a proposal for liberalising longer term external commercial borrowings, and talks with long-term investors such as Sovereign Wealth Funds and Pension Funds to invest more in India.
The announcements came on Wednesday when Chidambaram completed one year in office. Chidambaram was re-appointed Finance Minister on July 31, 2012 after Pranab Mukherjee was elected President. The Minister said the Government will not “rush” into a decision on issuing sovereign dollar bonds, though he reiterated that all options on making such an issue are still open.
“Taken together, we are confident that we can ensure stable sources of additional financing for the current account deficit,” Chidambaram said at a press conference.
On overseas borrowing by public sector enterprises and public sector banks, Chidambaram said these institutions have strong balance sheets, which will help them issue ‘quasi sovereign bonds.’ Such bonds are issued by government-owned institutions with an underlying guarantee from the Government, while costs are borne by the institutions issuing the bonds. Coupled with these measures, the UPA Government is also looking at significant liberalisation of the Foreign Direct Investment policy to boost fund flows. On Thursday, the Cabinet is expected to consider raising foreign investment limits in sectors, such as telecom, and simplifying investment norms in sectors, such as defence. It is also likely to consider easing norms for FDI in multi-brand retail, besides offering a new definition for control (of a company’s management) in the FDI policy.
Chidambaram also claimed that the current account deficit this year will be less than the previous year’s 4.8 per cent. “We have done our sums on FDI and FII flows. Even without additional measures, we estimate that the inflows will be well above $80 billion and this will be sufficient to finance, comfortably, the current account deficit,” he said while pointing out that in 2011-12, $12.8 billion was withdrawn from reserves to finance the deficit. However, in 2012-13, the entire deficit was not only financed without dipping into the reserves, but $3.8 billion was added to the kitty, he pointed out.
Chidambaram said RBI Governor D. Subbarao, who has not always seen eye-to-eye with the Finance Ministry and whose five-year term is ending on September 4, has not sought an extension. “Now, the search and selection for his replacement is on,” he said, without elaborating. Chief Economic Advisor Raghuram Rajan and Economic Affairs Secretary Arvind Mayaram are said to be in the race for the Governor’s post.