'Allow PSUs to issue quasi sovereign bonds to stem rupee slide'
New Delhi: The government should try to facilitate inflow of debt by allowing PSUs to issue quasi sovereign bonds in order to deal with problems on the external sector and to stem the rupee's slide, according to an Assocham study released on Tuesday.
"Allowing PSUs like IRFC, PFC and IIFCL to issue quasi sovereign debt would be a step in the right direction. Debt inflows is not a permanent solution but can give a breathing space to the policy makers to take more structural and sustainable solutions in due course," Head of Assocham's Capital Markets Committee Jagannadham Thunuguntla said.
Raising much-needed foreign exchange through quasi sovereign debt by the PSUs with strong balance sheets could give a more room to deal with the sharp rupee depreciation since May, said the Assocham-SMC study.
Debt inflows could result in two ways, either sovereign bond issue by the government or encouraging PSUs with strong balance sheets to issue corporate bonds, the study said.
On the other hand, expecting consistent flows from global investors into the equity market at this point of time may not be a realistic assessment, it said.
"It may be too optimistic to expect that global equity inflows come in the middle of such economic uncertainty," Thunuguntla said.
Besides, the Reserve Bank is likely to keep policy rates on hold and liquidity tightening measures in place in its monetary policy review on Thursday, he said.
"The RBI is expected to maintain a status quo in the monetary policy as it does not have much headroom... Taking into account the rise in inflation and tapering of stimulus by the US Federal Reserve on Wednesday," Thunuguntla said.
The fears that the US economy may face higher taxes, higher oil prices and higher interest rates in the fourth quarter of 2013 caused nervousness among the investors, highlighted the study.
The rupee is currently hovering around the 63/USD level. The local currency had depreciated to all-time low of 68.85 on August 28. Meanwhile, expensive onion and other food items pushed the WPI inflation to 6.1 percent in August.
India witnessed outflow of funds as Foreign Institutional Investors (FIIs) pulled out in the wake of the Federal Reserve indicating that it would consider tapering bond purchase programme if the US economy revives as per expectations.
The joint study report presents an analysis of the probable causes for investors to prefer taking exposure to Indian markets through foreign exchanges instead of directly entering Indian markets.