Steps to attract foreign funds in the offing

NRI bonds could be considered to raise forex reserves; Rajan rules out more steps to curb gold imports

In the wake of the rupee hitting a record intra-day low of 58.95 a dollar, the finance ministry today said measures would be announced shortly to encourage portfolio investor inflows. The ministry would also take the proposal for raising foreign direct investment (FDI) ceiling in various sectors to the Cabinet.

"In the coming weeks, we will recommend to the Cabinet, policies to enhance FDI limits on a number of areas. All this will help not just in the short-term objective of financing the Current Account Deficit (CAD) safely, but also in the longer-term objective of ensuring sustainable growth," Chief Economic Advisor Raghuram Rajan told reporters.

The government might come out with NRI bonds to attract overseas funds. "We will be looking at all options for safe financing of CAD.... It is still early days," Rajan said.

He said there had been some volatility in financial markets in the last few days and the government, the Reserve Bank of India (RBI) and the Securities and Exchange Board of India would take actions as warranted, but ruled out any additional measures for curbing gold imports, adding the recent measures taken by the government and RBI would be sufficient.

Economic Affairs Secretary Arvind Mayaram said a high CAD was bothering the government, but there has been a major reduction in offtake for gold in the last one week.

Gold imports on the first 13 business days till May 20, 2013, averaged $135 million a day. However, in the 14 subsequent days till Friday of last week, the imports averaged only $36 million. The government recently hiked Customs duty on gold to 8 per cent while the RBI has put restrictions on banks to import gold.

"Oil prices remain low, and exports are picking up. Also, some of the constraints on our exports of items like iron ore are alleviating, even while substitute imports such as scrap iron will abate. So, there is good reason to believe that the process of narrowing of CAD will continue over the next few months," he said.

India's CAD touched a record high of 6.7 per cent of Gross Domestic Product in the December 2012 quarter and is likely to be around five per cent during the last financial year.

The exchange rate has depreciated about 5.5 per cent since January 1, 2013, which is on a par with South Korea, Turkey and Brazil and much less than South Africa. The decline in the rupee is 7.5 per cent since May 1. India has received $4.162 billion in equity flows, and lost $486 million in debt outflows.

Mayaram said the rupee fall was a temporary phase and the Centre was not unduly disturbed by it. He said the domestic currency will stabilise in the next three-four days with large foreign fund flows.

IN THE ARSENAL

• Govt, Reserve Bank, Securities and Exchange Board of India to take "warranted" action to stem rupee volatility
• Rupee to stabilise in next three-four days with large foreign flows
• Additional measures for curbing gold imports ruled out
• Demand for forex to buy gold came down in last five-seven days
• Govt will enhance foreign institutional investor limits to ensure safe current account deficit (CAD) financing
• Cabinet to soon consider raising foreign direct investment limit in various sectors
• Low oil prices and pick-up in exports to help narrow CAD
• Non-resident Indian bonds could be considered to raise forex reserves