Public sector financial institutions including IRFC, Power Finance Corporation and India Infrastructure Finance Company Ltd have now been allowed to issue quasi-sovereign bonds worth $4 billion in total along with liberalisation of the external commercial borrowings regime.
The measures were announced as part of the government’s package to contain the current account deficit at $70 billion or 3.7 per cent of the GDP in 2013-14.
“Each of these institutions will have to take permission from their board and structure the bond,” said finance minister P Chidambaram on Monday, adding that these instruments will have implicit sovereign guarantee and can be deployed to finance long term infrastructure projects.
While IRFC has been allowed to issue bonds worth $ 1 billion while PFC and IIFCL can raise up to $ 1.5 billion each through these bonds.
The finance ministry also relaxed the regime for NRE and foreign currency non-resident accounts that would enhance capital inflows by $ 1 billion. The interest rate on FCNR deposits has been deregulated and incremental flows from NRE and FCNR accounts would be exempt from priority sector lending requirements.
Additionally, as part of measures to relax ECB norms, the government has decided that subsidiaries of multi-national companies in India will be allowed to raise such funds from their parent company. MRO operations will also be deemed as airport infrastructure.
“We have spoken to private sector companies and these steps will bring in additional capital inflows of $ 2 billion,” Chidambaram said, adding that the overall ECB limit has not been increased at present.
Meanwhile, PSU oil companies would be permitted to raise additional ECBs to the tune of $ 4 billion.
In all, these measures are expected to enhance capital inflows by $ 11 billion, helping to finance the CAD safely and also amount to some accretion to forex reserves.
Cad Projection in 2013-14 at $70 bn
*Compression in gold demand to 850 tonne to save $4 billion
*Compression in oil demand to yield $1.5 billion
*Quasi sovereign bonds to bring in $4 billion
*Relaxation of ECB regime to bring in $ 2 billion
*Oil PSUs to raise ECB and trade finance to bring in $4 billion
*Liberalisation of NRE and FCNR