Arun Jaitley

Government Announces Five Decisions to Control Higher Current Account Deficit; Another Crucial Meet on Saturday

New Delhi: At a meeting chaired by Prime Minister Narendra Modi, the Centre has taken five decisions to control the current account deficit (CAD). The five key decisions taken by the government were related to External Commercial Borrowings (ECBs), Masala bonds, Foreign Portfolio Investment (FPI) among others.

Speaking to reporters after the meet, Finance Minister Arun Jaitley said that a broad policy decision has been taken to address the issue of expanding CAD (Current Account Deficit) under which the government will take necessary steps to cut down non-essential imports and also increase exports. He asserted that maintaining the physical deficit remains the government’s top priority and they are confident of maintaining it.

Talking about the first measure, Jaitley informed that in reference to External Commercial Borrowings (ECBs), the mandatory hedging condition for infrastructure loans will be reviewed.

In another measure, the government has also decided to permit manufacturing sector entities to avail external commercial borrowing up to 50 million with a minimum maturity of one year. Previously, this maturity was of three years.

In a third measure to tackle higher current account deficit, a decision has been taken to review removal of exposure limit of 20 percent of FPI’s corporate bond portfolio to a single corporate group i.e company and related entities and 50 percent of any issue of corporate bonds.

Two other significant measures were taken in reference to masala bonds, detailing about which, Jaitley said, “It has been decided that this financial year 2018-19, there will be an exemption from withholding tax for issuance done in this year (up to 31 March 2019).

Also, there will be a removal of the restriction on Indian banks, market making in masala bonds, including a restriction on underwriting of masala bonds.”

Subhash Chandra Garg, Secretary Department of Economic Affairs (DEA) said,”Today’s discussion focused on current account and what can be done in capital account to finance the current account. There will be constant review on the current account side, probably next week.”

He added,”These 5 CAD (Current Account Deficit) measures would definitely have meaningful impact. It is difficult to give a specific number. I think it should have a impact of USD 8-10 billion.”

In the crucial meet, RBI Governor Urjit Patel, also gave a detailed presentation on the economic situation of the world and the external factors which can influence the Indian economy.

Meanwhile, Prime Minister Narendra Modi will hold another round of  economic review meeting with key policy makers on Saturday to discuss possible interventions by the government to address the macroeconomic challenges arising out of the depreciating rupee and steep rise in fuel prices.

The rupee touched an all-time low of Rs 72.91 per US dollar on Wednesday and closed at Rs 71.85 on Friday. Fuel prices, too, have been breaking records for some days with petrol selling at Rs 81.28 in Delhi and Rs 88.67 in Mumbai on Friday.

Finance Minister Arun Jaitley,  Expenditure Secretary Ajay Narayan Jha, NITI Aayog Vice-Chairman Rajiv Kumar, Reserve Bank governor Urjit Patel, PMEAC Chairman Bibek Debroy and Finance Secretary Hasmukh Adhia are among the officials who are likely to attend the meet on Saturday.

Modi is also likely to discuss issues related to fiscal discipline with the policy makers. Considering general elections next summer, some economists have expressed fear against populist measures and hope the government does not cut tax on petrol.

(With inputs from agencies)

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