More liberalization likely in FDI, multi-brand retail sector.
By R. Chandrasekaran
CHENNAI: Close on the heels of the Reserve Bank of India (RBI) holding the key rates same on Tuesday, the government announced on Wednesday measures to keep the rupee’s volatility under control after the Indian currency threatened to weaken further from its worst seen a few weeks back. The rupee slipped below the psychological level of 61 to threaten to hit the life time low of 61.21 during the day.
Both Finance Minister P Chidambaram and Commerce and Industry Minister Anand Sharma addressed the press with the focus centered on keeping the rupee’s volatility under check.
The commerce minister announced a 3 percent interest subvention for exporters reducing the interest burden on exporters. This is a boost to exporters since the money supply has been curtailed due to the RBI’s recent measures that could result in slightly higher cost of borrowing. The government intends to expand the schemes to more new sectors to include ready-made garments besides adding all micro, small and medium enterprises (MSMEs).
Anand Sharma also indicated that the government is working out ways and means to clear the incentives, which were not paid to exporters.
The commerce minister’s announcement came on the back of India’s exports dropping 4.6 percent in June on top of a 1.1 percent fall in May after recording 1.7 percent gain in April. Considering that the government has kept an optimistic export target of $300 billion, it has no alternatives but to announce more sops to lift exports since the first quarter yielded only 14 percent of the targeted amount. The first quarter number could well suggest that the government will struggle to meet the target.
On his part, Chidambaram disclosed that the government was pondering liberalizing foreign direct investment (FDI) and also in the multi brand retail sector. Clarifications will be issued during the coming days, he said.
While stating the agriculture sector has been very good given the fact that the rain fall is 16 percent above the normal average, the finance minister exuded confidence that services sector will grow similar to the last year level.
Chidambaram is also hoping to limit gold imports below last year’s level with a view to conserve the much needed foreign exchange that will have a favorable bearing on the current account deficit. Last year, gold import totaled 845 metric tons. The first quarter gold import was over 300 metric tons. Calling the industry to revive investments, he said that public sector units will be advised to raise funds from abroad as part of its effort to control the rupee.
On the insurance bill, the finance minister indicated that he will meet opposition leaders to allay their fears. While feeling confident to tackle both current account as well as fiscal deficits in the current fiscal year, he made it clear that its focus was on stabilizing the Indian currency and he doesn’t want to encourage speculation. At the same time, growth will also be supported, he said.
To contact the author, email to rchandrasekaran@americanbazaaronline.com