NEW DELHI: The government on Friday announced a slew of measures to stabilise the fast-eroding rupee, which has in the recent weeks sunken to levels not seen before, and contain the widening current account deficit (CAD) which touched 2.4 per cent of the GDP in the June quarter.
The steps include relaxation for foreign portfolio investors, curbs on non-essential imports and steps to boost exports, and removal of withholding tax on Masala (rupee-denominated) bonds. The current withholding tax (deducted at source) for Masala bonds is 5%.
The decisions were taken in a meeting chaired by Prime Minister Narendra Modi on Friday. Finance Minister Arun Jaitley, Reserve Bank Governor Urjit Patel and top officials were present in the meeting.
“RBI Governor gave a detailed presentation about the condition of world’s economy along with external factors which can affect Indian economy,” Jaitley said after attending the meeting.
Reducing non-essential imports will narrow trade deficit, which stood at $17.4 billion in August.
According to Economic affairs secretary Subhash Chandra Garg, the measures announced on Friday will have a positive impact on the economy to the tune of $8-10 billion.
Jaitley said that external factors such as policies adopted by the US, trade war and crude oil prices were impacting economies like India, despite “strong fundamentals”.
In another major decision, manufacturing entities will be allowed to avail external commercial borrowing facility up to $50 million with minimum maturity of one year, instead of the earlier limit of three years.
Also, restrictions will be removed with respect to foreign portfolio investors’ exposure limit of 20 per cent in corporate bond portfolio to a single corporate group or company or entity and 50 per cent of any issue of corporate bond.
More decisions are likely in the economic review meeting on Saturday, which was scheduled amid rising concerns over weakening rupee, high oil prices and widening current account deficit.
These are rupee-denominated bonds through which Indian companies can raise money from foreign markets in the rupee, and not in foreign currency.