India said on Wednesday it would ask state firms to raise funds abroad through "quasi-sovereign" bond issues and may reduce luxury and other imported goods as it stepped up its battle to halt the rupee's plunge.
Finance minister P Chidambaram made the announcements as the currency sank to 61.20 rupees to the dollar - within a whisker of its lifetime low of 61.21, hit earlier in July.
"The balance sheets of some of our public-sector units are quite strong to raise funds abroad - these would be quasi-sovereign issues," Chidambaram told reporters in New Delhi.
"Quasi-sovereign" means the buyer of the issue would have the Indian government's guarantee against any default.
"We need to stabilise the rupee and going forward take steps to promote growth," the Harvard-educated lawyer told a news conference marking one year since he took over the finance ministry for a third time.
The rupee rallied after Chidambaram's comments reiterating India's determination to defend the currency, strengthening to 60.40 rupees to the dollar
He also promised the government would further relax foreign direct investment rules to encourage foreign exchange inflows and take fresh steps to promote exports and reduce imports.
The government is battling to narrow a record current account deficit - the broadest measure of trade and investment flows.
The deficit has been a key factor pressuring the rupee, along with a sharply slowing economy and fears of a reduction in US stimulus that has spurred investor flows to emerging markets.
"We have to look at goods which we can produce and need not import in such large quantities (such as electronics) or goods which are clearly non-essential which some may call luxuries," Chidambaram said.
The government is determined to keep gold imports below last year's level of 845 million metric tonnes, he added, without naming a target.
Gold, after oil, is the second largest contributor to the current account deficit.
Chidambaram suggested for the first time growth might be just 5.5% this year - below the over six percent he initially forecast. Economists already see growth in the five percent range.
But even with slower expansion, he pledged his goal of reducing the current account deficit to 4.8% of GDP was a "red line" that would not be breached.
The government is also mulling relaxing foreign borrowing rules and ways to draw investments from global sovereign wealth and pension funds, and deposits from the vast diaspora of over 25 million Indians abroad to bolster reserves.
He said the government might make a sovereign bond issue "but I will not rush into any decision".
India's rupee woes have heightened speculation the nation could be headed for a crisis of the sort it suffered in 1991, which forced a bailout by the International Monetary Fund.
In an interview published this week, veteran economist Arvind Panagariya warned India's foreign exchange reserves were too low.
On Tuesday the central bank kept benchmark interest rates on hold and sounded less hawkish than expected on monetary policy, sending the rupee into a new downward spiral.
The currency's weakness is the latest blow for the scandal-tainted coalition of Prime Minister Manmohan Singh, which is keen to see the economy pick up before elections due in 2014.
Despite the economic gloom, Chidambaram said "there is a very good chance" the left-leaning Congress, badly lagging in opinion polls, could win a third term at the head of new coalition.
The pro-market minister has been mentioned as a potential prime ministerial candidate and doubts about whether ruling party heir-apparent Rahul Gandhi wants the job.
Chidambaram said there were no magic bullets for the economy.
"The world economy is challenged, so is India's economy," he said.