New Delhi: Finance minister Arun Jaitley on Friday night announced a series of measures to boost market confidence, curb the widening current account deficit and stabilize the rupee after a marathon meeting with Prime Minister Narendra Modi to discuss the nation’s economy.
Jaitley said five decisions have been taken to address the issue of the current account deficit, which touched 2.4% of gross domestic product in the June quarter. Mandatory hedging conditions for infrastructure loans through the external commercial borrowing (ECB) route will be reviewed and a 20% exposure limit on investments by foreign portfolio investors in debt to a single corporate group will be removed.
Government will permit the manufacturing sector to access ECBs up to $50 million with residual maturity of one year instead of three years. Masala bonds will be exempted from withholding tax this financial year and Indian banks will be allowed to become market makers in masala bonds including by underwriting.
In addition, “government will take efforts to reduce non-essential imports,” Jaitley said against the backdrop of India’s rising trade deficit which stood at $17.4 billion in August.
Also at the meeting were finance secretary Hasmukh Adhia, economic affairs secretary Subhash Chandra Garg and RBI governor Urjit Patel.
Patel made a presentation to the prime minister in which he highlighted the strength of the economy, Jaitley said.
“External factors like policy decisions taken by the US that is seeing the dollar strengthen, global crude prices and trade wars are impacting us despite India having strong macroeconomic fundamentals,” Jaitley said.
Economic affairs secretary Subhash Chandra Garg told CNBC-TV18 that the five measures will have an impact of around $8-10 billion.
The weaker rupee and rising fuel costs have become a politically sensitive issue with the main opposition Congress party having led a Bharat bandh on Monday. The rupee has depreciated more than 12% so far this year on a widening current account deficit and higher oil prices. The domestic currency is trading at 71.86 against the US dollar, compared to its Wednesday closing of 72.19.
Jaitley said earlier this month that there was no need for a panic or a knee-jerk reaction to the sharp rupee depreciation which he said was driven by global factors.