The govt on Friday night announced a set of measures to defend the rupee. The five points will focus on limiting the widened CAD ( current account deficit), encouraging market confidence and strengthening the rupee.
Finance minister Arun Jaitley notified that these five measures intend to contain current account deficit which has heightened till 2.4% of the GDP in June quarter. The decisions were taken after a meeting where PM Modi was briefed by RBI governor Urjit Patel about the on-going economic issues.
Government’s 5-point strategy
Limiting Non-Essential Imports and Boosting Exports
The central government is planning to take suitable measures to limit non-essential imports and enhance export. “Necessary decisions will be taken and announced as and when they’re taken,” said Arun Jaitley in a press conference. The government intervention in the forex market is likely to contain the current fluctuating trends.
- Restriction on Govt’s investments
The government may introduce certain limitation over their investment to raise the number of foreign portfolio investors in the corporate debt market. Jaitley said, “The condition that FPIs’ investment in a single corporate entity cannot exceed 20% of its corporate bond portfolio will be reviewed. The condition that FPIs cannot invest more than 50% of an issue of corporate bonds will also be reviewed.”
Exemption on masala bond
Masala bonds will be excluded from retention tax until the closing of the financial year. Further, Indian bank can act as liquidity providers in masala bonds by underwriting them.
Masala bonds are a financial instrument through which Indian borrowers can raise money from the overseas market in Indian currency. These bonds do not face the adverse effect of currency depreciation.
Reviewing condition on infrastructure loan borrowers
The compulsory hedging conditions for infrastructure loans borrowed via ECB (external commercial borrowing) route will be analyzed. Currently, there is no limitation on borrowers.
Only one-year term borrowings for Manufacturing companies from ECB
The last measure is to allow manufacturing companies to take borrowings (up to ₹5 Crore) from ECBs for a period of no more than one year.