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