Against the backdrop of a widening current account deficit, the finance ministry announced a series of measures to boost capital inflows and to curb the depreciation in the rupee.
Late on Friday night, Arun Jaitley after a long meeting with Prime Ministry Modi addressed a brief media meet stating a five-point strategy:
Mandatory hedging conditions for infrastructure loans through the external commercial borrowing (ECB) route will be reviewed.
20 percent exposure limits of foreign portfolio investors' corporate bond portfolio to a single corporate group, company and related entities will be removed, and 50 percent of any issue of corporate bonds will be reviewed.
Manufacturing sector entities will be permitted to avail external commercial borrowings up to $50 million with a minimum maturity of one year instead of the earlier period of three years.
Masala Bond issues done in the current financial year will be exempted from withholding tax.
Restrictions on Indian banks' market making in Masala Bonds, including restrictions on underwriting of such bonds, will be removed.
The announcements signal towards efforts to enable capital inflows. The current account deficit for the June ending quarter reported last week showed that it had widened to 2.4 percent of the gross domestic product (GDP). The trade deficit reported on Friday for the month of August has slightly narrowed to $17.39 billion from $18.02 billion in the month before, with gold imports growing larger to $3.64 billion from $2.96 billion in July. Jaitley in the media briefing also said that the government was looking at reducing the non-essential imports and increase exports.
The marathon meeting was also attended by RBI governor Urjit Patel who made a presentation on the global economy and external factors that could impact India's economy. Jaitley said that the conclusion (broadly) from the presentation was that India has a growth rate above others and inflation was at a moderate rate. He further added that external factors like the US dollar's strength, the rise in crude oil prices and trade conflicts are hurting the economy. More announcements will be made in the coming days based on recommendations from the RBI and Finance Ministry.
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