Government may tap overseas bonds, NRIs to boost rupee
With the rupee again kissing the 61-mark against the dollar, the government on Wednesday swung into damage control mode and said it may use public sector companies and state-run banks to raise dollar debt overseas besides leaning on expatriate Indians to access funds abroad to defend the rupee and finance the current account deficit.
While maintaining that an overseas government bond issue was still on the table, the finance minister made it appear that a quasi-sovereign issue, to be done by a state-run entity, was a done deal.
"Quasi-sovereign issues are doable and therefore we intend to ask some public sector undertakings to go for quasi-sovereign issues... Depending on the balance sheet of PSUs and opportunities to raise money, we will raise money abroad because many of our PSUs have the capacity and a strong balance sheet to raise money abroad at this point of time," Chidambaram told a press conference, adding that even state-run banks may be roped in.
After the conference, chief economic adviser Raghuram Rajan, who had held talks with banks to explore options, said the modalities could be worked out over the next few weeks.
In the past, the government has relied on State Bank of India to raise funds from NRIs through the Resurgent India Bonds in 1998 and India Millennium Deposits in 2001. Currently, public sector banks raise funds via bonds only for use by their foreign offices and SBI is keen that status quo is maintained as it wants to avoid having to set aside a significant chunk as cash reserve ratio.
While the fund raising plans are still being worked out, commerce & industry minister Anand Sharma announced an increase in interest subsidy for exporters from 2% to 3% for select sectors. The move aimed at propping up exports is expected to cost the government Rs 450 crore for the remaining part of the current financial year. Chidambaram has agreed to provide another Rs 1,550 crore to help clear pending claims of exporters as the government lowered the export target for the current financial year by $25 billion to $280 billion.
The government decided to move in to increase dollar flows to avoid dipping into foreign exchange reserves which were estimated at a little over $279 billion, the lowest level in three years and sufficient to cover imports for a little under seven months. A weaker rupee will put further pressure on the current account deficit as the import bill will rise.
Chidambaram said there were other tools also that the government was looking at. "Talks are under way with long-term investors such as Sovereign Wealth Funds and Pension Funds. In consultation with the RBI, we propose to liberalize longer-term ECBs in a sustainable way. We are also actively considering other measures. Taken together, we are confident that we can ensure stable sources of additional financing for the current account deficit."