‘Steps are taken by the government at the appropriate time’

With the rupee continuing to be a worrying factor for the economy, the government, on Monday, said the first sovereign bond issue in 12 years was an option before it to tackle forex volatility. “... all options are on the table and are examined from time to time. Steps are taken by the government at the appropriate time,” a Finance Ministry statement said. The statement came amidst reports that the government has momentarily shelved the option of a sovereign bond issue to tide over the slump in rupee against the U.S. dollar which had not only widened the current account deficit, but also strained domestic prices.

NRI bond issue

The government had used NRI bond issue option as a tool to stem rupee fall only on three occasions in the past — in 1991, 1998 and then in 2001. According to estimates, India can mop up $20 billion from NRI bonds.

In order to raise foreign exchange to deal with the external sector problems, India raised funds through India Development Bonds in 1991, Resurgent India Bonds in 1998 and India Millennium Deposits in 2001. Banks had raised $1.6 billion, $4.8 billion and $5.5 billion, respectively, from the bonds targeted at NRIs.

The rupee has depreciated by over 12 per cent against the dollar since the beginning of the fiscal. The Indian currency hit a lifetime low of 61.21 to a dollar on July 8, forcing the central bank and capital market regulator SEBI to take unconventional measures to arrest the slide. The rupee on Monday fell by 37 paise to close at 59.72 following month-end dollar demand from oil importers and some custodian banks coupled with capital outflows. During 2012-13, the current account deficit hit a record high of 4.7 per cent of GDP.

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