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India unveils new steps to prop up troubled rupee

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(Globalpost/GlobalPost)

NEW DELHI (Reuters) - India unveiled additional measures late on Monday aimed at attracting capital inflows to a weak economy and to control a wide current account deficit that has contributed to a decline of some 12 percent by the rupee against the dollar since May.

Finance Minister P. Chidambaram said the measures will help contain the deficit at $70 billion for the fiscal year ending in March, or an estimated 3.7 percent of gross domestic product, well below the record 4.8 percent in the previous fiscal year.

He said the steps will bring in a total of $11 billion this fiscal year, pushing up his estimate of capital inflows for the year to $75 billion.

Following are the measures as announced by Chidambaram:

GOLD

The government is looking to contain gold imports at 850 tons this fiscal year, after imports of 950 tons last year. This is likely to lower the import bill by $4 billion, he said.

OIL FROM IRAN

The government is aiming to cut the oil import bill by $1.5 billion this fiscal year. It is also looking for ways to boost oil imports from Iran, which will result in dollar savings.

SOVEREIGN WEALTH FUNDS

Sovereign wealth funds (SWFs) will be allowed to invest in tax-free bonds floated by state-run infrastructure finance companies. The government has earmarked 30 percent of these bonds specifically for investment by SWFs.

QUASI-SOVEREIGN BONDS

Indian Railway Finance Corp. Ltd. (IRFC), Power Finance Corp. (PFC) and India Infrastructure Finance Company Ltd. (IIFCL) will raise $4 billion from overseas via quasi-sovereign bonds to finance long term infrastructure. IRFC will raise $1 billion. PFC and IIFCL will raise $1.5 billion each, he said.

IMPORT RESTRICTIONS

The government aims to reduce imports of non-essential import items such as fridges and TVs. Tariff notifications to reduce imports of these items are likely to be brought before parliament as early as Tuesday. Chidambaram expects some dollar savings from these tariff restrictions.

OVERSEAS CORPORATE BORROWING

The Reserve Bank of India is expected to issue a circular by Tuesday to relax guidelines on borrowing by companies from overseas money markets, known as external commercial borrowing. Chidambaram says the relaxed guidelines will likely bring in extra $2 billion this fiscal year.

-Under the new guidelines, subsidiaries of multi-national companies in India will be allowed to raise money from their parent companies.

-Maintenance, repair, and operations facilities will be deemed a part of airport infrastructure.

-The government is talking to a number of private sector companies who have plans to raise money abroad.

OIL COMPANY FINANCE

State-run oil companies will raise additional funds from offshore money markets and trade finance. This will fetch an extra $4 billion. Indian Oil (IOC) will raise $1.7 billion. Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) will raise $1 billion each. An additional $250 million will come from trade finance.

NRI DEPOSITS

The Reserve bank of India will likely issue a circular about liberalizing deposit schemes for non-resident Indians by Tuesday. Chidambaram says this will likely bring in $1 billion.

-Under the new guidelines, incremental flows of deposits into Non-Resident Rupee Account Scheme (NRE)/Foreign Currency Account Scheme (FCNR) will be exempt from cash reserve ratio and statutory liquidity ratio requirements.

-Incremental flows will also be exempt from priority sector lending requirements.

-In FCNR (B) Accounts, interest rate will be deregulated on deposits with maturity of 3 years or more.

(Reporting by Rajesh Kumar Singh; Editing by Frank Jack Daniel)

http://www.globalpost.com/dispatch/news/thomson-reuters/130813/india-unveils-new-steps-prop-troubled-rupee