The government on Monday asked public sector oil marketing companies to borrow specified amounts from abroad, deregulated the interest rate for certain deposits from non-resident Indians and urged state-owned financial institutions to go for quasi-sovereign bonds for infrastructure financing, in measures aimed at additional capital inflows of about $11 billion in 2013-14. It is also set to announce a clutch of measures to curb imports soon, targeting a saving of at least $5.5 billion on the country’s import bill.
Finance minister P Chidambaram, who announced these measures first in Parliament on Monday and spelt out some details to the media later, said the current account deficit in FY 14 would be contained at $70 billion, which he estimated would amount to 3.7% of the gross domestic product, and asserted that not only would this deficit be fully and safely financed but, like last year, a small amount would be added to the foreign exchange reserves.
Chidambaram said that in a business-as-usual scenario, the country will receive $64 billion in foreign fund inflows in FY14. Thanks to Monday’s measures, the inflows could go up to $75 billion, which would be sufficient to finance a CAD of $70 billion. “Similar to the red line we drew for fiscal deficit, CAD’s red line of 3.7% to GDP will not be breached,” the minister said. Through measures to reduce import of high-value commodities (duty hikes), the minister hopes to save $1.5 billion in oil imports and $4 billion in gold imports.
As global investors fled emerging markets in anticipation of the US Federal Reserve rolling back its quantitative easing programme, India too suffered in terms of capital flight. So far this fiscal, foreign investment in Indian debt has seen a net outflow of about $5.7 billion.
Measures were announced on Monday to boost inflows as the country’s $280 billion forex reserves were sufficient only to cover about seven months of import bills. Details of steps to reduce import of high value commodities will be presented to Parliament soon.
Sources said the Reserve Bank of India will issue guidelines on the relaxation in external commercial borrowings (ECB), as per which Indian subsidiaries of multinationals will be allowed to borrow from their global parents. Also, businesses that provide aircraft maintenance, repair and overhaul (MRO) services will be allowed to raise ECB, deeming them as airport infrastructure providers. The liberalised foreign borrowing norms could lead to an