Published: Sat, September 15, 2018
Business | By Tara Barton

Govt announces five measures to stabilize rupee, curb current account deficit

Govt announces five measures to stabilize rupee, curb current account deficit

Masala bonds will be exempted from withholding tax this financial year and Indian banks will be allowed to become market makers in masala bonds including by underwriting.

Briefing media after the meeting, Finance Minister Arun Jaitley said the government has decided on "five steps" to contain CAD, which widened to 2.4 per cent of the GDP in the first quarter of 2018-19.

In another measure, the government has also made a decision to permit manufacturing sector entities to avail external commercial borrowing up to 50 million with a minimum maturity of one year. "Necessary decisions will be taken and announced as and when they're taken", Mr. Jaitley said in what is seen as a clear signal to markets that the government will intervene to manage the current volatility in the forex market.

Finance Minister Arun Jaitley, Expenditure Secretary Ajay Narayan Jha, NITI Aayog Vice-Chairman Rajiv Kumar, Reserve Bank governor Urjit Patel, PMEAC Chairman Bibek Debroy and Finance Secretary Hasmukh Adhia are among the officials who are likely to attend the meet on Saturday.

One of the important decisions is that mandatory hedging condition for infrastructure loans will be reviewed.

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The government would also take steps to promote exporters and restrict non-essential imports, he added. It is to be noted here that no Masala bond has been issued so far in the current fiscal. "The commodities of which imports will be cut down will be decided after consultations with concerned ministries and will be WTO-compliant", he said.

However, he did not disclose the list of non-essential items which would be subject to import restrictions. He assured that the Government is making its best effort to maintain the fiscal deficit and confident of meeting the targets. "However, the finance minister admitted that despite strong fundaments CAD has been impacted due to external factors".

Economic affairs secretary Subhash Chandra Garg told CNBC-TV18 that the five measures will have an impact of around $8-10 billion. It is hard to give a specific number. The rupee, which closed at 71.84 against the dollar, has lost 12% against the USA currency since January, making it Asia's worst-performing currency. The PM convened the meeting against the backdrop of the rupee being battered over the past few weeks as well as growing anger over rising petrol and diesel prices. "I think it should have an impact of United States dollars 8-10 billion", he said.

The Centre on Friday announced the first set of measures created to tamp down on the soaring current account deficit and ratchet up dollar inflows as it struggles to stem the dramatic 6 per cent slide in the rupee against the greenback since August.

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