The government and the
Reserve Bank of India (RBI) are likely to announce special measures on Monday to arrest the free fall of the rupee, which touched a
historic low of 57.32 vis-a-vis the dollar last week
jolting policy makers into action.
The rupee has depreciated 12 per cent since March.
RBI is expected to hike the interest rate for deposits of non-resident Indians (NRIs) in banks and unveil a special bond issue for overseas investors offering higher rates of interest to attract foreign currency into the system, which
will result in strengthening the rupee.
The new bond is expected to be on the lines of the Resurgent India Bond and the India Millennium Deposits scheme issued by the State Bank of India in 1998 and 2000, respectively, which had enabled it to bring in $5.5 billion despite a lowering of the credit rating by Standard and Poor's (S&P) at the time. RBI had similarly raised $4.2 billion in the wake of the economic sanctions after Pokhran 2.
The country is going through a similar credit rating outlook downgrade by Fitch and S&P but senior officials expect NRIs to take this in their stride as the Indian banks are financially sound.
Finance minister Pranab Mukherjee has admitted "these are no doubts signs of weakness in the Indian economy".
"We will be able to take certain measures which will be announced on Monday. They will improve the market condition," Mukherjee said in Kolkata on Saturday.
The government has already held discussions with RBI, he added.
"RBI may raise the interest rate on foreign currency non-resident (B) deposits further and announce issuance of bonds for NRIs to address the issue in the shortterm," said D. K. Joshi, chief economist, Crisil.
This will probably be the Mukherjee's "last hurrah" as finance minister before he resigns on Tuesday to contest the presidential election. Prime Minister Manmohan Singh is expected to fill the slot till decision is taken on who will finally replace Mukherjee.
The government is worried as the economic growth fell to a nine-year low of 6.5 per cent in 2011-12 and industrial output continues to be sluggish with a mere 0.1 per cent growth in April. The Prime Minister's Office has taken steps in recent weeks to fast-track big-ticket infrastructure projects to rev up the growth rate.
The runaway fiscal deficit, which is close to six per cent of the GDP, is another area of concern and the finance minister has already announced some austerity measures such as curbs on foreign travel and the purchase of cars by government departments.
However, these are seen largely as symbolic measures since the humungous outgo on petroleum, food and fertiliser subsidies cannot be plugged due to political compulsions of the government.
The weakening rupee is causing problems for the economy as cost of essential imports such as crude and edible oil, and commodities such as coal turns more expensive.
The current account deficit has ballooned as well. This occurred since exports earnings have fallen far short of imports due to the slump in demand for Indian goods in overseas markets causing the trade deficit to rise to a whopping $180 billion.
Courtesy: Mail Today 
RBI Governor D Subbarao 
Special 
