The pressure on the rupee is likely to ease with the Finance Minister and his team promising bankers and foreign institutional investors steps to attract more capital inflows and narrow the current account deficit.
Finance Minister P. Chidambaram, who met select top bankers and FIIs in Mumbai on Saturday, allayed their fears about funding the gap arising from excess of imports over exports and project clearances. Economic Affairs Secretary Arvind Mayaram, and Financial Services Secretary Rajiv Takru were also present.
Though Chidambaram did not speak to the media, Mayaram said, “We have done our arithmetic to get some additional flows, including through quasi-sovereign bonds issued by public sector finance institutions.” The institutions are preparing for the bond issuances, he added.
Amid fears of the US Fed reversing its easy money policy later this year, Mayaram said if there will be some forex outflows, it will be compensated by strong capital inflows from the FDI (foreign direct investment) side, deposits by overseas Indians, and the roadmap for attracting capital inflows the Finance Minister hinted at.
According to the Finance Ministry official, just one public sector entity could raise $4 billion and the total amount raised through bond issuances could be $11-12 billion.
Takru said many good ideas came out of the meeting. “I think you should see something (measures) coming up shortly, next 8-10 days.”
Project clearances
The rupee, which recovered by 130 paise to close at 63.30 to the dollar on Friday on RBI intervention, has fallen nearly 20 per cent since May. The domestic currency touched an all-time intra-day low of 65.65 on Thursday.
On the other moves the Government was making, Takru said that “In last one month, 27 projects have been cleared. These are all large projects. And next week, nine projects are coming up for final decision before the Cabinet… these projects are in the power, there is surface, transport...”
Mayaram said the meeting with the FIIs was to understand their concerns and address them. “Broadly, as the message the Finance Minister gave in the past on CAD and fiscal deficit, we are seeing that in the first quarter the exports have actually picked up and FDI flows have been very strong as compared to the first quarter last year. This time it has been around $9 billion which is 70 per cent more than first quarter last year. So we think that in the real economy the investments will begin to pick up,” he said.
According to Mayaram, decisions taken on gas linkages and pricing will boost the power sector. This will have an impacton growth in the third and fourth quarter.
Suggestions and ideas
Top bankers, including State Bank of India chief Pratip Chaudhuri; S.S. Mundra, (Bank of Baroda); V.R. Iyer (Bank of India); Chanda Kochhar (ICICI Bank); Aditya Puri, (HDFC Bank); Anurag Adlakha (Standard Chartered India); and Pramit Jhaveri (Citibank India), attended the meeting.
Kochhar said the meeting was mainly to seek suggestions and ideas about what can be done to augment capital inflows. “I think it was good and positive meeting,” she said.
V.R. Iyer said, “The discussion was purely on the inflow of NRI deposits and how we can attract more inflows.”
The meeting also discussed whether exporters should be given more sops on direct and indirect taxes.