Mumbai: After discussions between Finance Minister P. Chidambaram and FIIs and banks, the Finance Ministry on Saturday said steps to attract capital flows to fund the current account deficit can be expected within a week.
"All measures to attract fund flows are under consideration," Financial Services Secretary Rajiv Takru told reporters after Chidambaram chaired meetings with FIIs and top bankers here.
"I think you should see something coming up shortly, say within a week or in the next 10 days," he said.
Takru did not divulge details about the nature of the measures - whether they would be a sovereign bond issue, NRI bonds or a quasi-sovereign mode of debt raising. Concerns among investors about the widening current account deficit have led to turmoil in the stock markets and a sharp depreciation of the rupee.
Chidambaram held a closed-door meeting with top bankers and also met foreign institutional investors, whose money is key to funding CAD, as the government sought to allay apprehensions about India's economic situation and appraise them of steps taken to boost growth and stabilise the rupee.
"FIIs have sought certain explanations, which the Finance Minister gave them," Takru said, without elaborating on what issues were raised in the meeting. There had been concerns about a return to capital controls after the RBI last week announced curbs on outflows by local companies and residents in a bid to stem the rupee's slide.
On Thursday, Chidambaram said no capital control measures are planned.
Takru said several suggestions came up during the meeting with banks. Lenders, especially the State Bank of India, have been opposing the idea of issuing NRI bonds, citing legal complications in the overseas markets, specially in the US. Chidambaram did not meet reporters outside the hotel where he held discussions with bankers and FIIs.
The rupee, which hit a lifetime low of 65.56 to the dollar on Thursday, has depreciated almost 20 per cent since the beginning of the financial year. The stock markets are down close to 10 per cent this year.
To attract foreign funds, the immediate steps could include nudging banks to increase interest rates on NRE and FCNR-B deposits, which are already above 10 per cent.
Earlier this week, Axis Bank, IDBI Bank, Federal Bank and some public sector lenders raised rates to lure NRI deposits. Asked if banks were given any direction to hike NRE deposit rates and hold lending rates, Takru said, "We don't force or even nudge banks to do anything like that. It's up to banks to decide, based on the availability of funds."
On the revival of projects, he said, "Within the next week, nine large stalled projects are coming up for final decision before the cabinet. These projects are in the power, coal and transport sectors." He also said in the last one month alone, as many as 27 large stalled infrastructure projects worth over Rs 1.1 trillion were cleared. B
oth the plight of the rupee and the flight of capital arise from worries about the government's ability to finance the widening current account deficit, which rose to a historical high of 4.8 per cent of GDP last fiscal. While Chidambaram has repeatedly said the CAD would be capped at 3.7 per cent, or USD 68 billion, recent RBI steps to support the rupee have left foreign investors worried. Chidambaram was accompanied by top officials, including Takru and Economic Affairs Secretary Arvind Mayaram.
Bankers present at the meeting included State Bank's Pratip Chaudhuri, ICICI Bank's Chanda Kochhar, HDFC Bank's Aditya Puri, Pramit Jhaveri of Citigroup and V.R. Iyer of Bank of India.
"The meeting was mainly to seek ideas and suggestions on what can be done about capital inflows. It was a very good and positive meeting," Kochhar told reporters afterwards. Asked whether there was any directive from the minister to the bank about NRI bonds, State Bank Chairman Chaudhuri said, "There was no directive, it was only a consultation."