New Delhi: Worried over rupee sliding to historic low of 58.96 against dollar, Finance Ministry Tuesday said it is working on steps to increase foreign investment inflows and is open to the idea of floating NRI bonds.
Seeking to assuage market sentiments, Department of Economic Affairs Secretary Arvind Mayaram said the government was "not unduly disturbed" by steep fall in rupee. He also exuded confidence that the domestic currency will stabilise in the next 3-4 days with expected big foreign fund flows.
Without ruling out the possibility of NRI bonds to raise foreign funds, Chief Economic Advisor Raghuram Rajan said government is "looking at all options" and will take steps to increase portfolio and foreign direct investment (FDI).
"We will continue to implement measures to ensure that portfolio investor inflows are enabled and encouraged, and some of these measures will be announced very shortly. In the coming weeks, we will recommend to the Cabinet policies to enhance FDI limits on a number of areas," Rajan said.
The rupee has depreciated by 3.5 percent against the US dollar in the last two days touching all-time low of 58.96 in intra-day trade today. RBI intervened in forex market to stem the slide of rupee which finally closed at 58.39 a dollar.
Since January 1, the rupee value has fallen by 5.5 percent against the dollar.
Rajan further said government, Reserve Bank and SEBI would step in at appropriate time to curb volatility in financial markets.
Government has been looking at the possibility of raising FDI cap in sectors, including defence, and it has already set up a committee to review the ceiling in other areas.
Currently, there are sectors where FDI limit is way below 100 percent. While in multi-brand retail it is 51 percent, in telecom and banking it is 74 percent, and in defence it is 26 percent.
Rajan said the steep fall in rupee is mainly due to outflow of FII funds from debt instruments and concerns relating to high trade deficit.
Since May 1, outflows from debt instruments stood at USD 486 million. At the same time, equity inflows stood at USD 4.16 billion. So, since May 1, the portfolio inflows into India have been USD 3.7 billion.
Mayaram said in the coming days the foreign institutional investors (FIIs) would put funds into the debt segment, which would help the rupee inch up from the current levels.
"This is a temporary phase. This is simply a correction. Our indication is some of the FIIs are now poised to bring in large funds. In next 3-4 days, we will see a mid-course correction," he said.
Mayaram said emerging economies around the world are facing currency depreciation with South African currency depreciating by 11 percent. He said the rupee would recover as the country's economic fundamentals are strong and government is taking steps to increase fund flows.
Overseas investors have pulled out more than Rs 7,600 crore (USD 1.35 billion) from the Indian debt market in the first week of this month owing to weakness of the rupee.
During June 3-7, FIIs were gross buyers of debt (Rs 2,487 crore), while they sold bonds worth Rs 10,162 crore resulting into net outflow of Rs 7,675 crore (USD 1.35 billion).
FIIs were net buyers in equity markets with an investment of Rs 118 crore (about USD 21 million) during the week. With this, the total foreign investment in the equity market has reached Rs 83,322 crore so far this year.
In order to overcome external sector problems, the government had earlier raised funds through India Development Bond (IDB) of 1991, Resurgent India Bonds (RIB) in 1998 and India Millennium Deposits (IMD) in 2001.
While the IDB fetched USD 1.6 billion, USD 5 billion each was raised through the RIB and IMD.
First Published: Tuesday, June 11, 2013, 21:56