In an effort to rein the rupee, the Government on Friday announced a slew of measures. These include curbing non-essential imports and incentivising the exports.
These measures were announced after the Prime Minister Narendra Modi went into huddle with the Finance Minister Arun Jaitley and the RBI Governor Urjit Patel beside senior Finance Ministry officials and other Government officials to review the economy especially after rupee plunged to below 72 level against a dollar, though closed at 71.85 a dollar on Friday.
Since oil prices are already on rise, there is apprehension that current account deficit (CAD which is difference between receipts and payment in foreign currency) to reach as high as 2.9 per cent of GDP. At the same time, such a situation will have impact on the retail inflation as prices of petrol and diesel are moving northwards rapidly.
Finance Minister Arun Jaitley said that five decisions have been taken. These include:
- Import curb on non-essential items, specific items to be announced later
- Review removal of exposure limit of 20 per cent of Foreign Portfolio Investors’ (FPI) corporate bond portfolio to a single corporate group and 50 per cent of any issue of corporate bond
- No withholding tax on Masala Bonds issued during current fiscal. There will be removal of restrictions on Indian Banks including restrictions on underwriting of Masala Bonds
- Manufacturing firms will be able to avail loans up to $ 50 million with a maturity of one year
- Review of mandatory hedging condition for infrastructure loans as already touched 86.5 per cent of the full year's target of Rs 6.24 lakh crore. On August 31, the Controller General of Accounts (CGA) said the fiscal deficit for April-July was Rs 5.40 lakh crore.
The Government hoped that these measures will have impact up to $10 billion and bring some stability in rupee. Jaitley also made clear that more steps are under consideration and can be taken as and when required. He assured that the Government is making its best effort to maintain the fiscal deficit and confident of meeting the targets.
The rupee has been the worst performing Asian currency this year. Despite strong GDP growth, the currency has weakened about 12 per cent this year amid higher oil prices and a broad sell-off in emerging markets, widening India’s current account deficit and a worsening balance of payments that slipped into the red in April-June for the first time in six quarters.