The rupee hit a new all-time low to 64.13 on Monday on fears that recent steps to kickstart the country's flagging economy will not work. The Sensex also tanked over 325 points to dip below 18,000 level in early trade on sustained selling, extending losses for the third straight
Policy makers' measures to prop up the currency, which is down 12% against the dollar so far in 2013, have thus far proved ineffective, making it the worst performer in emerging Asia and threatening to drive the region's third-largest economy towards a full-blown crisis.
Following are measures announced by Indian authorities:
The government is looking to contain gold imports at 850 tonnes this fiscal year, compared with 950 tonnes last year. Finance minister P Chidambaram said this would lower the import bill by $4 billion.
- New Delhi hiked the import duty on gold for the third time in eight months to 10% from the earlier 8%.
- It also raised the factory gate duty on gold bars to 9% from 7%.
- It banned imports of gold coins and medallions.
- All imports of gold now need a licence from the foreign trade office and would have to be brought into a customs-bonded
- Unrefined gold will now be included under an existing rule stipulating that 20% of all imports must be used for export, which is usually in the form of jewellery.
The government is also targeting imports of silver, which are a tiny fraction of gold.
- It has raised the import tax on silver to 10% from 6%.
Oil from Iran
The government is aiming to cut the oil import bill by $1.5 billion this fiscal year.
It is also looking for ways to boost oil imports from Iran, which will result in dollar savings.
Sovereign wealth funds
Sovereign wealth funds (SWFs) will be allowed to invest in tax-free bonds floated by state-run infrastructure finance companies.
The government has earmarked 30% of these bonds specifically for investment by SWFs.
Indian Railway Finance Corp. Ltd. (IRFC), Power Finance Corp. (PFC) and India Infrastructure Finance Company Ltd.
(IIFCL) will raise $4 billion from overseas via quasi-sovereign bonds to finance long term infrastructure.
IRFC will raise $1 billion.
PFC and IIFCL will raise $1.5 billion each.
The government aims to reduce imports of non-essential import items such as fridges and TVs. Chidambaram expects some
dollar savings from these tariff restrictions.
However, he is yet to act upon the plan, and there are some concerns they could run afoul of WTO agreements.
Overseas corporate borrowing
India has relaxed guidelines on borrowing by companies from overseas money markets, known as external commercial borrowing. Chidambaram says the relaxed guidelines will likely bring in extra $2 billion this fiscal year.
- Under the new guidelines, subsidiaries of multi-national companies in India will be allowed to raise money from their parent companies.
- Maintenance, repair, and operations facilities will be deemed a part of airport infrastructure.
- The government is talking to a number of private sector companies who have plans to raise money abroad.
Oil company finance
State-run oil companies will raise additional funds from offshore money markets and trade finance.
This will fetch an extra $4 billion.
Indian Oil Corporation (IOC) will raise $1.7 billion.
Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) will raise $1 billion each.
An additional $250 million will come from trade finance.
Non-resident indian deposits
India has liberalised deposit schemes for non-resident Indians (NRIs). Chidambaram says this will likely bring in $1 billion.
- Under the new guidelines, incremental flows of deposits into Non-Resident Rupee Account Scheme (NRE)/Foreign Currency Account Scheme (FCNR) will be exempt from cash reserve ratio and statutory liquidity ratio requirements.
- In NRE deposits, the interest rate will be deregulated on deposits with maturity of 3 years or more, while in FCNR (B) deposits of 3-5 years, the ceiling has been relaxed to LIBOR plus 400 bps from 300 bps.
Foreign exchange outflows
The Reserve Bank of India (RBI) has announced measures to reduce foreign exchange outflows by resident Indians.
- It has cut the limit for overseas direct investments (ODI) under the automatic route for all new transactions to 100% of networth from 400%.
- The reduced limit would also apply to remittances made by Indian companies setting up unincorporated entities outside of the country in the energy and natural resources sectors, but would not apply to ONGC Videsh Ltd, the foreign unit of Oil and Natural Gas Corp, or Oil India Ltd.
- The RBI has also reduced the limit for remittances made by resident individuals under the liberalised remittance scheme to $75,000 from $200,000 per financial year.
- It has banned use of remittances for purchases of property outside India.
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