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Amid talk of sovereign bond issues for foreign markets, the Reserve Bank of India (RBI) Governor D Subbarao met Finance Minister P Chidambaram and other senior ministry officials on Monday for over an hour and discussed various options to arrest sliding macroeconomic numbers and the rupee value against the dollar.
The finance minister, in another meeting, briefed Prime Minister Manmohan Singh about the current macroeconomic situation and his recent visit to the United States.
According to sources, Subbarao rushed to Delhi after he got a call from Economic Affairs Secretary Arvind Mayaram on Saturday. This resulted in the cancellation of the RBI governor’s public engagements in Mumbai.
On Monday, Subbarao was scheduled to deliver a keynote address at a seminar on financial inclusion at Maharshi Dayanand College of Arts, Science & Commerce at Parel in central Mumbai and, thereafter, to attend another function at VES Engineering College at Chembur.
Curiously, finance ministry officials said it was the RBI governor who sought an appointment with the finance minister before leaving for London on Wednesday for a lecture. From London, the RBI governor is scheduled to go to Moscow for the G-20 meeting of central bank governors and finance ministers, to be held on July 19 and 20. The finance minister will leave for Jaipur tomorrow to hold the first regional group of ministers on media briefing.
Ostensibly, it was G-20 agenda which was discussed at the meeting, also attended by Economic Affairs Secretary Mayaram, Chief Economic Adviser Raghuram Rajan, and Additional Secretary in the capital markets division K P Krishnan, besides officials from the Budget division.
“I have come to discuss the G20 issues with the finance minister,” said Subbarao.
The governor and finance ministry officials were tight-lipped over the sovereign bond issue.
“I don’t want to comment on this,” Subbarao said when asked whether he also discussed it in the meeting.
To a query whether only G-20 was discussed during the one-hour meeting, a ministry official responded that he “cannot write on stamp paper that the meeting did not discuss macro economic issues”.
Sources said the meeting deliberated on various options to stem the falling growth numbers and the rupee value against the dollar but no specific decision was taken.
Notably, macro economic parameters have not been showing any sign of improvement. The rupee closed on Monday at 59.89/90 a dollar compared with 59.56/57 on Friday, a depreciation of 0.6 per cent. Industrial production contracted to an 11-month low of 1.6 per cent in May, while retail inflation rose to 9.87 per cent in June from 9.31 per cent in May. Exports, on the other hand, contracted for a second month in a row in June by four per cent.
After the meeting, the finance minister was understood to have met Defence Minister A K Antony. The defence ministry is opposed to the Mayaram panel report on raising the cap on foreign direct investment (FDI) in defence production to 49 per cent from 26 per cent.
Earlier, the finance minister had said the Mayaram panel recommendations might come up in the Cabinet by the third week of July. The panel had suggested doing away with the minimum cap of 26 per cent and, instead, have a minimum FDI limit of 49 per cent. The recommendations, if accepted, would mean higher FDI cap in media, defence production, insurance (for which a Bill will have to be passed.
The Prime Minister will meet his senior cabinet colleagues on the Mayaram panel recommendations on Tuesday, officials said. The meeting will also take up the concerns raised by the commerce & industry ministry over the increasing number of acquisitions of domestic pharma companies by foreign companies.
Later, Subbarao had a separate meeting with Mayaram, Rajan and Krishnan.
Chidambaram is also scheduled to participate in the G20 meeting. Both Chidambaram and Mayaram were in the US last week to talk up India to American businessmen, while Rajan was interacting with bankers for the possibility of sovereign bond issue.
India has floated sovereign bonds thrice in the past. The country’s high current account deficit has weighed on the rupee, which is also the worst-performing Asian currency since the start of the financial year. Since April, the rupee has depreciated 10.5 per cent against the dollar. Concerns that the US Fed will taper its third round of bond buying programme, known as quantitative easing (QE 3), has also led foreign investors to pull out from emerging markets including India,. This has also put pressure on the currency.
Earlier in the day, Chidambaram met Prime Minister Manmohan Singh to discuss the economic situation. Chidambaram is understood to have discussed the rupee woes and macro economic situation with the Prime Minister, besides his recent visit to the United States.
