Chi­dambaram may ease In­dia FDI caps, seeks in­ter­est-rate cut

The Pak Banker - - FRONT PAGE -

In­dia's fi­nance min­is­ter said the na­tion may ease re­stric­tions on for­eign-di­rect in­vest­ment and called on the cen­tral bank to cut in­ter­est rates, as he ex­tends ef­forts to re­vive growth in Asia's third-largest econ­omy. "Many caps can be re­moved or cer­tainly re­laxed," and a re­view of the lim­its has be­gun, Pala­niap­pan Chi­dambaram, 67, said in an in­ter­view.

A nar­rower bud­get deficit has cre­ated space for a rate cut, he said be­fore the cen­tral bank's pol­icy de­ci­sion to­mor­row. He also said In­dian com­pa­nies seem "quite happy" with the ru­pee at its cur­rent level of 54 to 55 per dol­lar.

The re­view may her­ald a sweep­ing re­lax­ation of the in­vest­ment caps in about two dozen in­dus­tries rang­ing from telecom­mu­ni­ca­tions to bank­ing, which would be In­dia's big­gest open­ing to overseas com­pa­nies since the 1990s. Chi­dambaram es­ti­mates the coun­try's econ­omy may need more than $75 bil­lion of for­eign cap­i­tal this year and next to fund a record cur­rent- ac­count gap, adding pres­sure to re­lax rules.

Ten-year government bonds rose af­ter the min­is­ter's com­ments sig­nal­ing he sees room for lower rates. The yield on the 8.15 per­cent note due June 2022 traded at 7.85 per­cent in Mum­bai from 7.86 per­cent on March 15, ac­cord­ing to the cen­tral bank's trad­ing sys­tem. Three-month non-de­liv­er­able ru­pee for­wards weak­ened to 55.24 a dol­lar af­ter the com­ments on the cur­rency, ac­cord­ing to data. "Some of th­ese caps are com­pletely ir­rel­e­vant in terms of the changed sit­u­a­tion," said Chi­dambaram, who be­came fi­nance min­is­ter for the third time in July last year. "We need to clear some of the cob­webs ac­cu­mu­lated in In­dia and go out and woo spe­cific busi­ness houses."

Chi­dambaram has helped to spear­head pol­icy changes to re­vive a fal­ter­ing econ­omy. The government since midSeptem­ber has per­mit­ted more for­eign in­vest­ment in re­tail and avi­a­tion, cut levies on overseas bor­row­ing, curbed fuel sub­si­dies and set up a panel to speed up stalled road, rail and port projects. "This cre­ates trans­parency on what is be­ing done and shows that the government is not only se­ri­ous on con­tin­u­ing with the re­forms but also im­ple­ment­ing them," said Leif Eske­sen, chief In­dia and South­east Asia econ­o­mist for HSBC Hold­ings Plc in Sin­ga­pore. "It is im­por­tant to demon­strate the de­ter­mi­na­tion and will­ing­ness to move for­ward on th­ese poli­cies." The ru­pee has ap­pre­ci­ated 2.1 per­cent ver­sus the dol­lar since the changes be­gan on Sept. 13, to 54.29 per dol­lar at 11:17 a.m. in Mum­bai. It re­mains down 7.6 per­cent in the past 12 months, a pe­riod when the BSE In­dia Sen­si­tive In­dex climbed 10.4 per­cent. "Both im­porters and ex­porters, to the ex­tent I know, to the ex­tent that I have been told, seem quite happy with the ru­pee be­tween 54 and 55," Chi­dambaram said. The fi­nance min­is­ter said he's try­ing to iden­tify which of the world's largest 500 com­pa­nies have yet to in­vest in In­dia.

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