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Steps to boost foreign investment coming soon

business Updated: May 23, 2013 13:59 IST
Gaurav Choudhury
Gaurav Choudhury
Hindustan Times

In a big new round of reforms, the government is likely to announce a slew of measures to boost foreign fund flows into India and pep up a falling rupee, while soothing the frayed nerves of investors.

The government is looking to address concerns of investors who fear the government is more likely to focus on political risk management in an election year run-up rather than reverse the slowdown in the economy, which until recently was an engine of global growth.

India’s economic growth, according to advance estimates, crashed to a decade’s low of 5% in 2012-13.

The new measures will likely make it easier for foreign institutional investors (FIIs) to invest in India's corporate and government bond markets, said a government source, who did not wish to be identified.

The move is aimed at attracting more dollars into India to halt a sliding rupee that recently fell below 55 to the US dollar.

A sliding rupee spells bad news for those who planning to study and travel abroad. It also makes overseas holidaying and studying abroad costlier by pushing up fees and other charges.

The government is keen to attract more dollars to pep up the rupee primarily to rein in a potentially bloated oil import bill. A weak rupee makes crude oil imports costlier, and the resultant increase in fuel prices can potentially knock up prices of most goods.

While most of these moves will not require legislative sanction, investors are keenly watching for forward-looking cues on politically contentious issues such as plans to further open up the insurance and pension sectors to foreign investment.

Besides, the fate of two of India’s biggest tax reform initiatives — the Direct Taxes Code and the Goods and Services Tax — hang in the balance as both require parliamentary approval.

The government is also mulling the option of taking the ordinance route to set up a regulator for the coal sector and a railway tariff authority. The coal regulator will be tasked with the mandate to provide a formula for the pricing of coal and assess quality of coal among others. This can lead to improved power generation.

Boosting market sentiment is crucial as weak investor perceptions can upset the government’s budget economics, particularly its plans to earn Rs. 55,814 crore in 2013-14 by selling equity in state-owned companies.