The stage is set for Monday’s announcement. After the assurances, almost as an encore by the Finance Minister and the Prime Minister, on unveiling a booster package to revive the economy and the markets, the bourses, India Inc., various stakeholders and the nation at large are eagerly awaiting a dose of adrenalin to transform the current gloomy environment into one of confidence and boom.
Such is the despondency that appears to have set in that there is no second guessing what lies in store, not even by the apex chambers and other industry lobbyists. But this time, it is clear that the government, with its back to the wall, is serious and means business.
What apparently has jolted the government into taking action is the free fall of the rupee in recent days and, more so, a single-day slump of 85 paise when the rupee slumped to an all-time record intra-day low of 57.37 to the US dollar on Friday amidst fears that if no immediate steps are taken, it could well breach the 58 mark.
The overall economic repercussions of such sharp depreciation of the Indian current in the near future is such that it prompted Finance Minister Pranab Mukherjee to say: “I have asked the DEA Secretary to discuss [the] rupee situation with RBI Deputy Governor. DEA Secretary [R. Golapan] will take steps to contain the rupee slide.” He followed it up on Saturday in Kolkata saying, “We will be able to take certain measures that will be announced on Monday…”
With the RBI maintaining a status quo in its key policy rates and the cash reserve ratio — ostensibly on account of inflationary pressures still persisting and inaction on the part of the government thus far — no one should be expecting the apex bank to tweak the interest rates at this moment. In this scenario, the steps that are likely to be announced, and are largely being anticipated, are a further hike in rates of interest for NRI deposits along with the rollout of a bond issue for overseas investors.
“RBI may increase the interest rate on FCNR(B) deposit further and announce the issuance of bonds for non-resident Indians to address the issues in the short-term,” Crisil’s Chief Economist D.K. Joshi said.
The two measures in the near term, it is expected, would contain the rupee fall on account of the capital inflows that would follow. Alongside, certain measures may also be announced to shore up private investment, boost investor sentiment and cut down on wasteful expenditure further. According to Institute of Rural Management Chairman Y.K. Alagh, since private investment is constrained by lack of availability of funds, “the government might announce some measures for attracting investments and also steps to cut down wasteful expenditures.”
On his way back to the capital onboard his special aircraft, Prime Minister Manmohan Singh on Saturday had asserted that a revival package would soon be unveiled to put the economy on a higher growth trajectory. Noting that India cannot expect “outside help” to see the country through its difficulties, he said: “We have to raise our economy through our own good steps… There are problems with regard to management of the balance of payments deficit on the current account. Those problems also we will tackle.”
Indicating that the long-pending policy reforms would also be initiated at the soonest, Dr. Singh said: “It will not be proper for me to talk about these things in detail, but you have my assurance that I recognise that we have to work our way to restore the momentum of growth that India needs and which the people of India want the Government of India to work for… We have to work systematically to ensure that the balance of payment problem is managed properly and the climate for foreign investment, both direct and portfolio, is also favourably motivated.”
Evidently, while steps will have to be taken to contain the burgeoning subsidies on diesel and other petroleum products, the government is likely to roll out the package that had been suggested by apex chamber CII. While some of its recommendations have already been implemented, the government may now announce a 25 per cent accelerated depreciation for investment in plant and machinery to encourage investments by the private sector and to revive the investment sentiment.
The chamber had also suggested that the government could extend all approvals and clearances for 50 large projects on a priority basis in the next 30 days in consultation with State governments and relevant ministries. This, it said, would quickly put projects on implementation mode which in turn would create demand for more than 100 industrial sectors.
Also, the chamber viewed that a clear plan with numbers — plans for additional revenue and rationalised expenditure — for containing fiscal deficit could be released by the government as such an announcement would go a long way in boosting investor sentiments and also arrest the crowding out of private investment due to high levels of market borrowings raised by the government.