Sovereign PSU bonds, NRI funds to bridge deficit: FM

Written by fe Bureau | New Delhi | Updated: Aug 1 2013, 06:43am hrs
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 years $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 RBIs 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 RBIs 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 Reserves 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 low of 61.21, before recovering on the back of intervention by the RBI and statements by Chidambaram regarding PSUs raising funds abroad, and his plans to curb CAD. The rupee finally ended the day at 60.20 versus the dollar.

On the governments legislative agenda in the monsoon session starting August 5, the minister said apart from the ordinances (on food security), the pension Bill which by itself is not controversial would be pushed. Whatever FDI cap is there in the insurance law will be there in the pension law. So even if insurance Bill does not pass, the pension Bill can pass. On the insurance Bill, we will meet the opposition on August 3 and I hope they will give an positive response. He said the amended Direct Taxes Code Bill would be placed in the monsoon session, but was noncommittal on a timeline for the GST Constitutional Amendment Bill.

Despite the first-quarter fiscal deficit figure released earlier in the day being R2.63 lakh crore or almost half of the budget target for all of 2013-14, the finance minister asserted that the target 4.8% of the GDP would not be breached. Even with a growth rate of 5.5-6% of GDP, the revenue growth rate of 21% was achievable (last year, with 5% GDP growth, revenue grew 16%).

Both the tax revenue and disinvestment targets would be met, he said. Chidambaram said he was happy that the Plan spending so far this fiscal has been Rs 1.47 lakh crore as against Rs 1.13 lakh core in the same period last year thanks to the ministries starting to spend early but stressed that overall expenditure would be kept under control as outlined in the Budget.

Chidambaram said June-July imports of gold were less than that a year ago, adding that every effort would be made to contain it at a level below last years 845 tonnes and expressed the hope that this would save considerable foreign exchange.

Pining hopes on thesignificantly higher growth in agriculture and an expansion by the services sector which would be as good as if not better than last years, Chidambaram said, We will take the Indian economy one rung higher in 2013-14. He added: We are looking forward to a growth rate between 5.5% and 6% and we will take all measures to achieve that goal. He stressed the importance of implementation of projects outlays must bring about outcomes and said even at a 31-12% investment rate, Indias GDP could grow at 7% and said anything below 8% growth should not satisfy us.