New Delhi, Aug. 19: Finance minister P. Chidambaram today hunkered down for a marathon meeting with senior government officials to arrest the massive slide in the value of the rupee, which sank to its all-time low of 63.30 to the dollar in intra-day trade.
Top officials said the consensus right now was to go ahead and place tariff walls on the purchase of a long list of luxuries from cars to electronics and to ask all state-run banks to start raising interest rates on foreign currency non resident deposits to attract NRI dollars.
Chidambaram met senior officials of various departments to take stock of the economic situation and deliberated on steps to improve it. The three-hour long meeting was attended by secretaries of departments of revenue, expenditure, financial services and disinvestment.
The agenda for the next three months was discussed in the meeting, a source said. “It was a performance assessment and way forward,” a source said. The finance minister will be meeting officials of the department of economic affairs tomorrow.
FCNR deposit rates
Working on the advice of the finance ministry’s banking division, Dena Bank raised deposit rates on all FCNR deposits today.
On five-year term deposits the rate offered is 5.56 per cent per annum for dollar deposits. Similarly, a 1 per cent hike has been made in case of term deposits in pounds, euro, yen, and the Canadian and Australian dollars.
The SBI offers rates which are at least 1 per cent lower. Officials said most PSU banks would be hiking the rates offered on FCNR deposits.
“Banks can now afford to raise interest rates on FCNR deposits as we have waived CRR and SLR requirement for incremental FCNR deposits and have also let them off from requirements of lending money out of these deposits to priority sectors,” officials said.
Officials said there was a growing consensus on increasing import tax on electronics, capital goods and automobiles to reduce India’s $190-billion trade deficit and force transnational giants to shift production bases to the country.
However, Indian industrialists who are setting up electricity plants and telecom networks have been lobbying against these measures as they fear it will raise the building cost of their plants and networks.
A move to increase import taxes on coal is also being opposed as it could raise the cost of electricity generation by private power producers.
However, officials said most of the tax increase moves would be cleared within the next few days and notifications issued within this month.
“A quasi-sovereign bond issue by banks is still not off the shelf of options for us... but right now we want to get off with the measures already decided,” department of economic affairs officials said.
A sovereign bond is a long-term paper issued by a country, while a quasi-sovereign bond is a similar paper issued with the backing of the government.
Foreign currency dealers have remained unimpressed by the measures announced by the finance ministry and the RBI till now and have continued to hammer the rupee in currency futures all over the world from London and Dubai to Singapore.
CII director-general Chandrajit Bannerjee told The Telegraph, “The market has been looking for some kind of a big move by the government, something like a sovereign bond which will shore up our foreign exchange reserves.”
Currency dealers and industry believe a move to create a larger reserve of foreign exchange through a large bond issue that would pay the country’s widening current account deficit (the gap between what India earns and spends in hard currency) is the need of the hour.
Former chief economic adviser Kaushik Basu, now chief economist with the World Bank, told reporters at the sidelines of a conference that the country should use the opportunity to boost exports by cutting red tape and reducing transaction costs.
Basu said, “The situation is not as bad as is being captured by the mood and captured in the headlines … The gloom is being overplayed.”
The World Bank executive also said India “is not in a situation” where it needs to borrow from the IMF to balance its books or stave off an attack on the value of the rupee. “India has enough foreign exchange reserves so the question of having to turn to the IMF is not there.”