The Finance Ministry will in the next few weeks announce some “specific” measures to enable stable and sustainable funding of the current account deficit, Raghuram Rajan, Chief Economic Advisor to the Finance Ministry, said here today.
Without delving into the options available on the table, Rajan told a press conference that one should not see the proposed measures as “one-off” or those driven by the US policy measures of tapering its bond purchase programme.
“Everything is on the table. We are focusing on narrowing the set of measures that we will be able to announce. I don’t want to pre-commit or pre-judge an option, but we are narrowing it down.”
Speculation is rife in the markets that the Government is planning a sovereign bond issue or rupee bond issue targeted at non-resident Indians to fund the burgeoning CAD.
Rajan also said that the Finance Ministry welcomed the RBI’s Tuesday announcement to keep the policy rates unchanged.
“The RBI and Government are on the same page and working together to ensure stability and growth of the economy”, he said.
The Indian stock indices were weak post the RBI announcement as it did not find any special additional measures to reduce CAD or further stabilise the rupee. The rupee breached the Rs 60-mark once again adding to the nervousness of the market participants.
Rajan, however, sought to calm the nervous financial markets stating that Government was exploring ways to reduce CAD including reducing imports and measures to incentivise or expand exports.
“Consequently, we believe CAD will be brought down significantly this year regardless of the outside world. Of course, if growth picks up in Europe and US, CAD will come down faster”.
Rajan also said that there is nothing to indicate that US tapering will begin in September.
“Our measures here are not when the US tapering will start. Financing has to be stable, sustainable and additional-not cannibalise existing sources of financing by creating a new source of financing”.
Rajan also said that India was not defending a particular level of the rupee. “We don’t associate stability with a particular number. We associate stability with a lower volatility — that is it should not be moving around as much as it is moving around on a daily basis”.