)
Finance Minister P Chidambaram rushed in and out of Mumbai on Saturday but not before reassuring representatives of foreign institutions and banks that the government was on top of the ongoing economic situation and was preparing measures to attract more deposits and fast-track clearances of large projects.
Speaking to the media after two separate meetings with foreign institutional investors (FIIs) and banks, Economic Affairs Secretary Arvind Mayaram said the government was also ready with steps to counter the possible pull-out of money by FIIs when the US began rollback of its monetary stimulus programme.
Even if there are outflows, it will be compensated, in our opinion, by strong capital inflows from the FDI side and the road map the FM has shared, said Mayaram. We have done our arithmetic of getting some additional capital flows, including through quasi sovereign bonds issued by public-sector institutions. He did not specify when the public-sector financial institutions would raise money through the bonds: Our total number would be $11-12 billion, he added.
Chidambaram, who attended the meetings along with Mayaram and Financial Services Secretary Rajiv Takru, sought feedback from participants about their concerns over the countrys financial markets and outlook for the economy.
FIIs were eager to know what new steps and policy action the government would take to ensure stability in the market, said four people who were part of the meeting. These investors also sought the finance ministrys views on flagging growth, rupee fall, current account deficit (CAD), interest rate direction and issues impeding investments.
The meeting came in the wake of the rupees recent weakness against the dollar, which also dragged down the stock markets. The rupee has fallen almost six per cent over the past month.
The finance minister, who did not speak to the media, is learnt to have assured FIIs that interest rates would start falling when the rupees slide was curbed and stability returned to the currency market.
The finance minister assured us that CAD and fiscal deficit will soon be in control, a person who attended the meeting said.
Mayaram told FIIs that a lot of structural reforms to reduce CAD and revive investments was being taken but were not being heard in the din and cacophony surrounding the market movement. They will begin to show results in the current year itself. And, we are hopeful it will reflect on growth that happens in the second, third and fourth quarters, he said.
Chidambaram is said to have told FIIs that the divestment of its holdings in Specified Undertaking of UTI (Suuti) was in the offing. Suuti the restructured unit of the erstwhile UTI holds shares of ITC, Axis Bank and Larsen & Toubro.
The FII meeting was facilitated by foreign brokerages, including Citi, Goldman Sachs, Morgan Stanley and Deutsche Bank. The executives who attended the meeting said Chidambaram was mostly listening to the participants and that the outcome of the meeting was positive, but they would wait for more concrete steps from the government to revive the sentiment.
Chidambaram also sought feedback on how to fix the CAD by attracting more capital flows, said another person in knowledge of the matter. Among other things, investors asked the government to remove all the limits and restrictions on FII debt. Also, they asked the government to list on the JPMorgan global debt index to attract long-term foreign flows. These investors told the finance ministry that the hardening of the US bond yields was affecting overseas flows. They cautioned we could see more outflows if the yields hardened further.
Meeting with bankers
Bank of India CMD V R Iyer said the discussion was about how we can improve the flow of dollars into the country. It was just an exchange of ideas with the leading bankers with more foreign offices and NRE/FCNR deposits. They noted our views and they will look into the matter and get back.
Iyer said bankers emphasised the need for a boost in exports in the wake of the rupees fall and the trade deficit. It should be deputed as a priority-sector advance. There can be more focus and exporters can be given more sops on direct and indirect taxes, she said.
According to CEO of a large public-sector bank, there also were suggestions to raise the ceiling on export refinance and introduce short-term NRI deposits.
After the meeting, Takru told reporters that many of the suggestions would be considered. There was a lot of discussion. Lots of good ideas came out. I think you should see something coming up shortly in 8-10 days, he said.
He added 27 different projects had been cleared, with timeframe, over the past month. These are all large projects. Within the next week, nine projects should come before the Cabinet for final decision, he said.
PEP TALK
August 12
* If CAD is contained at $70 bn, it will amount to 3.7% of GDP
* Oil PSUs and public-sector financial firms will raise $4 bn each from external commercial borrowings and quasi sovereign bonds
* This year, gold imports will fall to 850 tonnes, from last years 950 tonnes. The fall in gold and oil imports will help the economy save $1.5 bn.
August 14
* Its (RBI measures) not capital control. Its not that we are going back to capital-control days. One should not over interpret or overreact. Corporates requiring forex can always go to RBI for approval
August 23
* We expect growth to pick up from Q2 to Q4. Supporting this are 9.1% increase in sown area, acceleration in pace of Plan expenditure, and impact of the projects cleared by CCI over the past few months
* For 2013-14, govt has made two commitments: That fiscal deficit will be contained at 4.8%; and that CAD will be contained at $70 bn and fully & safely financed. I shall continue to make every effort to communicate these to the markets and stakeholders
