New Delhi: In a bid to stem the fall of rupee and boost investor sentiment, Finance Minister P Chidambaram Wednesday said government will further liberalise the FDI policy and hinted at measures to check non-essential imports to tame the Current Account Deficit (CAD).
Marking completion of one year after his return to Finance Ministry, he told a press conference that the government would take steps to ensure growth and encourage public sector undertakings to raise funds from overseas markets, besides relaxing ECB norms.
The government, Chidambaram said, is also considering steps to attract investments from sovereign wealth and pension funds and float NRI deposit scheme. He said the rupee must be stabilised and volatility must be reduced.
Stressing on the need to revive investment, he exuded confidence that the economic growth rate in the current fiscal will improve to 5.5-6 percent from 5 percent a year ago.
"The government is actively considering significant liberalising of the FDI policy which would further increase long term foreign investment. We will ask some public sector companies to raise funds abroad. We have also decided on some measures to attract loner term NRI funds", the Minister said.
Asserting that government hopes to contain gold imports at a level well below last year's figure of 845 tonnes, he said, "simultaneously we are looking at some compression in non-oil and non-gold imports, especially of non-essential goods".
Elaborating on compression on imports, Chidambaram said that officials were preparing a list of non-essential goods with a view to limit their inward shipments.
Specifically mentioning coal and electronic hardware, he said, "Electronic hardware can be manufactured in states like Rajasthan and Kerala."
Referring to the issue of fiscal deficit, Chidambaram said, "the target for fiscal deficit is 4.8 per cent. It is a red line and it will not be breached".
As regards the CAD, the Minister said, "thanks to the steps taken so far and some more steps that are on the anvil, we expect that we would be able to fully finance the current account deficit this year too and we will not be obliged to draw down on the reserves."
Last fiscal, the current deficit rose to all time high of 4.7 per of the GDP or USD 88 billion.
Despite USD 88 billion of CAD, there was USD 3.8 billion added to the forex reserve of the country in the last financial year, he said.
When asked whether the government has any specific value of rupee in mind, Chidambaram said: "We do not target any specific value of rupee, but we certainly do not countenance speculative transactions on the rupee, especially in the overseas market.
"Therefore in last two weeks, RBI in consultation with the government had taken a number of measures to stabilise the rupee...We need to stabilise the rupee and going forward take steps to promote growth. The rupee depreciation of June-July was unexpected".
Asked about why investment is not coming in multi-brand retail sector, the Finance Minister said "FDI in multi-brand is being held back because there are some very pertinent questions on the policy and on the details of the policy."
The Commerce Ministry, he said, is on the last leg of clarifying on the issues raised in the policy on multi-brand.
"But clarifications should be issued, I am told, in the next few days. Once these clarifications are issued, I think you will find the first investments in FDI in multi- brand retail coming to India," he said.
Regarding the role of the Comptroller and Auditor General (CAG), whose reports have caused considerable embarrassment to the government, the Minister said it was wrong on the part of the auditing body to question policies.
"There is a clear distinction between policies and errors, mistakes, irregularities in implementation of policy. Government makes policies. If policies are wrong, Parliament will pull up the government, people will pull up the government.
"I do not think policy can be questioned by CAG. In the implementation of policy if there are irregularities, illegalities, punish the wrongdoers," he said.
On the question of floating a sovereign bond, the Minister said the option was on the table but the government would not rush into taking any decision.
RBI Governor D Subbarao yesterday opposed the issue of sovereign bonds to bridge a widening current account deficit (CAD) as the benefits of raising foreign exchange from such an instrument outweigh the costs.
"It (issue of sovereign bonds) will compromise our financial stability, if people factor in the exchange rate variation. In the RBI's view, the cost of a sovereign bond issue, especially in the current juncture, outweighs the benefits," Subbarao had said.
The RBI policy announced yesterday, Chidambaram said, hinted at easing of interest rates once the rupee stabilises and volatility in the currency market is reduced.
The RBI had said recent liquidity tightening measures, taken to support the rupee, will be rolled back in a calibrated manner as stability is restored to the foreign exchange market, enabling it to revert to the policy of supporting growth with continuing vigil on inflation.
Yesterday, the RBI retained the repo rate, at which it lends to the system, at 7.25 percent and the cash reserve ratio, the amount of deposits banks park with RBI, was left unchanged at 4 percent.
Enthused by the good monsoon, the Finance Minister expressed hope that agriculture credit will exceed the target for the current fiscal.
"At the beginning of the year, it was estimated that banks will provide agricultural credit of Rs 7,00,000 crore this year (as against last year's level of Rs 5,75,000 crore). However, having regard to the good monsoon and the increase in the sown area, I am asking banks to gear up to provide agricultural credit in excess of Rs 7,00,000 crore," he said.