The Centre on Friday announced several measures to rein in the rupee’s fall against the dollar. These include curbing non-essential imports and incentivising exports.
These measures were announced following a meeting between Prime Minister Narendra Modi, Finance Minister Arun Jaitley and RBI Governor Urjit Patel, besides senior Finance Ministry and other government officials to review the economy after the rupee plunged to sub-72 levels against the dollar. It closed at 71.85 a dollar on Friday.
With oil prices already on the rise, it is feared that the current account deficit (CAD, the difference between receipts and payments in foreign currency) would reach as high as 2.9 per cent of GDP. Such a situation would impact retail inflation as petrol and diesel prices are rapidly moving northwards.
Finance Minister Arun Jaitley said five decisions had been taken. These include:
- Import curbs on non-essential items, specific items will 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 this fiscal. Restrictions on Indian banks would be removed, including restrictions on underwriting masala bonds
- Manufacturing firms can get loans up to $50 million with a maturity of one year
- Review of mandatory hedging conditions for infrastructure loans that have 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 hopes these measures will have an impact of up to $10 billion and bring some stability in the rupee. Jaitley also made it clear that more steps are under consideration and can be taken as and when required. He said the Government is putting in the best efforts to maintain the fiscal deficit and is confident of meeting 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.