The government is looking into the option of raising funds overseas, including from non-resident Indians (NRIs) to stem the sharp slide of the rupee, apart from getting more banks to buy debt that is currently on the books of non-banking finance companies, to restore confidence in the financial markets. It remains unclear when the government intends to tap overseas resources to bolster its foreign exchange reserves and provide comfort to the Indian currency. The rupee closed at 74.11 after hitting a new low of 74.48, last week. While economists have suggested connecting with NRIs for quite some time, the government remains wary of doing so.
In September 2013, when the rupee slid below 68, the UPA government had raised over $34 billion through foreign currency non-resident (bank) account deposits to calm sentiments. Officials said given the current situation, the government will need to raise around $65-70 billion and are unclear about the cost implications, especially when interest rates are rising in the US. A senior government official said, “Rupee, balance of payments, current account deficit are the main worries, we have strategy in place to tackle situation. We will take action at opportune time on these issues.” They suggested that the Indian market were still relatively stable compared with other equity markets.
“The rupee may remain firm if oil prices stay range bound. We do believe that rupee should appreciate from this level,” the official added. Steps to reduce import, aimed to reduce the trade deficit, have been initiated through two rounds of duty hike. The government at the same time, is looking to get more state-run banks to take over the loan portfolio of NBFCs in an attempt to provide liquidity to the sector that is seen to be crucial for financing needs of the micro, small and medium enterprises (MSMEs).
While the finance ministry has been pushing RBI to initiate more steps, the regulator has been reluctant to create a special dispensation for NBFCs, something that the government is not very happy with. RBI’s statement after the monetary policy on putting curbs on short-term borrowings has not gone down well with the government as it believes that it has created further panic in the sector that is already facing difficult times.
