In a move to stop the rupee’s fall, the Reserve Bank of India (RBI) on Monday announced a slew of measures that include an increase in the limit on foreign investment in government securities (G-Sec) by $5 billion to $20 billion while widening the investor base.
It also hiked the limit of External Commercial Borrowing (ECB) allowed for Indian companies to $10 billion.
However, the measures failed to have any significant impact on the rupee, which closed at Rs 57.01 against the dollar, compared with Friday’s close of Rs. 57.15. The markets were disappointed as Monday’s announcements failed to meet expectations built up over the weekend following the Finance Minister’s statement that strong steps to support the rupee would be announced.
In an effort to widen the non-resident investor base for G-Secs, Sovereign Wealth Funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks to be registered with SEBI have also been allowed to invest in G-Secs.
The RBI has also decided to allow qualified foreign investors to invest in infrastructure debt through mutual funds. “The single largest factor that will impress the equity markets and foreign investors will be measures to bring down the fiscal deficit and that hasn’t been addressed today. The increase in the ECB and G-Sec limits will be positive for the Indian rupee in the near term but are unlikely to have any immediate impact on the equity markets,” said Gautam Trivedi, Managing Director and Head of Equities, Religare Capital Markets.
The equity markets ended in the red as the 30-share Bombay Stock Exchange Sensex closed below the 17,000-mark, at 16,882.16, with a loss of 90.35 points or 0.53 per cent, after hitting the day’s high of 17,131.15.
Keywords: Reserve Bank of India, Indian economy, rupee value
The fiscal deficit can be reduced only if both bureaucracy and polity act in tandem to ensure that every Rupee budgeted for actually is spent where intended not just on paper but in actual reality. It is the unwritten and unspoken provision for leaks (read corruption) that escalate project costs to astronomical figures and unbelievable duration.
It is hightime that project monitoring and report on budgeted vs acutal results are viewable online and real time in the respective constituency's project portal so that pertinent questions could be raised by the stake holders based on which CAG, Vigilance and law enforcement authority could investigate if there are indeed blatant variations when there could still be affordable course corrections.
What is the point in India being the IT hub for the world when there is political will to use it to come down heavily to stem budget leakages in realtime using the power or technology and stake holder access to relevant information?
One side Government threatened genuine investors to retroeffectively charge tax dating back to 16 years, discouraged NRIs and Foreign investors and the other side invite them to invest more. Actions of the Government are not consistent with international practice and conducive for Genuine Investors to invest. Rather no effort was made to bring back black money. Rules are tightened for genuine tax payers only. How the economy will improve? To improve the economy, we do not need doctorates / experts in the field. We want simple procedures / trust in investors and consistent policies. You can catch wrongdoers even today. But, why do you harass honest people with stringent / scaring laws?
welcome move from both (RBI and Central Govt)sides. but it is not
satisfactory for the sudden recovery for the economy. This move helps
the govt to raise more funds for its development activities (FII
investment limit in government debts to $ 20 billion from the
existing $ 15 billion )but the later one (alternation in ECB ) will
push Indian inc to additional burden of high interest for their
borrowings. Indian companies may not ready to borrow additional funds
from abroad,rather than they need government support for their
activities both financially and legally.
It has been proj3ected something great has been done to improve the economy and to arrest the slide on rupee. The facts are otherwise. Only a very few companies will consistent foreign exchange earnings for the last three years, will be eligible. The maximum ECB that can be availed by an individual company will be limited to 50 per cent of the average annual export earnings realised during the past three financial years. Further the liability arising out of ECB is extinguished only out of the foreigtn exchange earnings of the borrowing company. Now tell me, how many corporates will be able to borrow except a very few like Reliance Industries Ltd., who are already cash rich.
I dont see any good happening until money laundering is nipped in the bud. Black money is one of the major hazards to the economy. Mere increasing the limits of ECBs and investments in G-Secs by FIIs will not do. Simultaneously Govt. should spend on infrastructure (keynesian model) and equitable development of tier two cities. I see so much of scope there, why Govt is failing to notice that?
The last time RBI tried to counter the rupee fall by selling dollar and
that was a failed effort. Let us see if RBI is able to pull back the
rupee value on track this time or we will see yet another promising
decision by the supreme bank.
The news is conflicting with the other new sources which states that
ECB limit has been raised by $10bn and now has ceiling at$40bn.
please confirm about this
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