In fire-fighting mode to check the widening current account deficit (CAD) and stem the rupee slide in a volatile foreign exchange market, the government on Monday unveiled a set of measures to shore up forex inflows by an additional $11 billion during the current fiscal by easing overseas borrowing norms and announced its intention to hike the customs duties on gold, silver and other non-essential goods to contain the import bill.

At a press conference here after making an identical statement in both Houses of Parliament on the steps the government planned to put in place to contain the CAD at $70 billion, or 3.7 per cent of the GDP, this fiscal, Finance Minister P. Chidambaram said the interest on foreign currency non-resident (NRI/NRE) accounts stands liberalised to attract more deposits.

Alongside, while specific public sector undertakings are being permitted to issue quasi-sovereign bonds to mop up funds for the infrastructure sector, the norms for external commercial borrowings (ECBs) are also being eased to enable the oil PSUs to garner dollars for financing their import requirements.

As for the quantum of hike in duties to curb non-essential imports, Mr. Chidambaram refused to divulge any detail as Parliament was in session. He said the customs notifications on the import of these select items would be placed in Parliament on Tuesday. He assured the nation that the initiatives being implemented would help to reduce volatility in the forex market and thereby stabilise the rupee and contain the CAD.

“CAD is a problem [but] we have solutions. We will implement the solution [and] there is no room for panic…CAD is as much a red line as fiscal deficit. If we can contain CAD, sentiment about currency market and rupee will significantly improve,” he said.

As for the specific measures that are to be put in place to increase foreign capital inflows amounting to $ 11 billion, Mr. Chidambaram said that permission would be granted to the PSU finance companies – Indian Railway Finance Corporation(IRFC), Power Finance Corporation (PFC) and India Infrastructure Finance Company Limited (IIFCL) – to mop up $ 4 billion by issuing quasi-sovereign bonds for infrastructure sector development. Of this, while IRFC is to mop up $ 1 billion, PFC and IIFCL are to garner $ 1.5 billion each.

Another $ 4 billion, Mr. Chidambaram said, would be mopped up by the oil PSUs as they would be permitted to raise additional ECBs. Of the three oil PSUs, while IOC has been allowed to raise $ 1.75 billion, the other two – PBCL and HPCL – will mop up $ 1 billion each to meet their working capital requirements. After including trade finance, the total ECB inflows would add up to $ 4 billion.

Mr. Chidambaram stated that while Sovereign Wealth Funds (SWFs) would be allowed to invest up to 30 per cent in tax-free bonds to be floated by PSU financial institutions, the RBI would also issue circulars permitting MNC subsidiaries in India to raise funds from their parent companies. The ECB window will also include MRO (Maintenance, Repair and Overhaul) facilities which along with easier ECB norms would fetch an additional $ 2 billion while the liberalisation of the non-resident deposit schemes (NRE/FCNR) would fetch about $ 1 billion.

In particular, the incremental flows into the NRE/FCNR schemes, Mr. Chidambaram said, would be exempt from CRR and SLR requirements. Already, in the FCNR accounts, interest on deposits with a maturity of three years or more has been deregulated. “So all together in liberalising FCNR, NRE deposit schemes we expect to get a billion dollars,” he said.

The Finance Minister also expressed satisfaction over the discernible fall in

oil and gold imports during the current fiscal thus far. In oil, for instance, there has been a reduction in growth of consumption during April-June 2013 to 0.7 per cent from 10.3 per cent during the corresponding period last year while bullion imports has seen a significant decline.

“We may save $ 4 billion in gold import and $ 1.5 billion in oil import,” Mr. Chidambaram said while pointing out that gold imports this fiscal was likely to come down to 850 tonnes from 950 tonnes in 2012-13.

In the business-as-usual scenario, Mr. Chidambaram said the forex inflows were expected to be about $ 64 billion. “Now if we add this $ 11 billion, the inflow will be about $ 75 billion. With this, we will not only be able to fully finance the CAD but also add to our forex reserves,” he said.

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