Exhorting India Inc to “rediscover optimism” and reminding industry that the price of credit is “not so dauntingly high” for it to hold back investments, finance minister P Chidambaram on Wednesday listed a slew of measures he was planning to take soon to address his immediate and pressing concerns — the volatility in the exchange rate of the rupee and the high current account deficit (CAD). In an unusually long press conference, marking the completion of a year in office in his current term, the finance minister promised measures to augment exports, compress some imports — including that of electronic hardware and, maybe, coal — and increase capital flows to fully and safely finance the CAD.
Chidambaram was confident the CAD this fiscal would be contained at $80 billion as against last year’s $88 billion, and added that capital inflows of the same level would be achieved with the help of some policy options to be exercised. These included “significant liberalisation of the FDI policy” (the Cabinet is likely to consider approval through the automatic route for foreign direct investment up to 49% in multi-brand retail and removal of some strings attached to FDI in the sector on Thursday), allowing financially strong public sector companies including public sector banks to raise funds abroad and steps to attract longer-term NRI funds. The minister added that a proposal to liberalise longer-term external commercial borrowings in consultation with the Reserve Bank of India (RBI) was also under consideration.
Sovereign bonds, the minister said, were “on the table”, though in reply to a query added the RBI’s concerns on this would have to be given the “greatest weight”. “Quasi-sovereign issues by PSUs are indeed doable,” he said.
On a day when the RBI said it “will continue and persist with” the liquidity tightening measures until it has come to a determination that volatility in the exchange rate has been controlled, the finance minister stressed the need for these steps, but said that there was enough in the RBI’s monetary policy statement to indicate that once the rupee stabilised, interest rates could be eased. “What happened to the rupee in June-July was quite unexpected... Between August and May it was very stable,” the minister said, adding that the US Federal Reserve’s statement to unwind quantitative easing impacted other emerging economies also.
The rupee opened at 60.91 to the dollar and dropped to 61.20, very close to its all-time