The UPA government followed up its bold decision to increase prices of natural gas by outlining ambitious plans to build infrastructure on Friday, moves likely to restore some faith in the economy in a politically significant year.
The rupee, which has been on a downward spiral, rose 81 paise to a dollar, its biggest daily gain in nine months, while the Sensex rose 520 points or 2.75% on the decision to raise gas prices.
Then Prime Minister Manmohan Singh, after a high-level inter-ministerial meet, decided that investments worth Rs. 1,15,000 crore in infrastructure projects would be cleared on a priority basis.
The 30-share Sensex closed at 19,395.81, recording its biggest single day gain in 22 months while the rupee ended at 59.38. The broader NSE Nifty vaulted 2.81% and closed at 5,842 up 159.85 points.
The PM’s move, besides upgrading India’s creaky infrastructure, could directly spin jobs around railways, roads, ports and airport projects, vital to multiply income and reverse decade-low economic slowdown.
Next week, Singh will also hold another meet to review FDI caps in a range of sectors, such as telecom, which could see major investments flowing in.
The government, sources said, is readying a raft of measures including allowing upto 100% FDI in India's telecommunication sector and opening up the defence production sector to 49% FDI from the current limit of 26%.
The fresh policy pronouncements are likely to soothe frayed nerves of investors who fear that the government is more likely to be focused on political risk management rather than turning around the economy, which until recently was an engine for global growth.
"The Prime Minister highlighted the need to ramp up investment in infrastructure to revive investor sentiment. For this purpose, a target of rolling out public-private-partnership projects of at least R1 lakh crores in the next six months was set," the prime minister's office said in a statement.
The move to double natural gas prices to $ 8.4 per unit under a new formula suggested by a panel headed by Prime Minister's economic adviser C Rangarajan from April 1 will likely push up the price you pay for everything from food items to public transport.
But it will help foreign investors in the energy sector as the local prices are moved closer to global market levels.
"We view the government's decision as credit positive for the sector as it will incentivise further exploration and production that will help reduce India's reliance on import of crude oil and natural gas" said Vikas Halan, senior analyst at US-credit rating firm Moody's.
Foreign capital flows have become critical for India, as rupee lost almost 7% in a month and its current account deficit — the difference between dollar inflows and outflows — hit a high 4.8% of the gross domestic product in 2012-13.
Capital market regulator Securities Exchange Board of India recently announced a slew of measures including simplifying rules and registration procedures for foreign investors aimed at attracting dollars, vital to spin jobs and multiply income.