Govt may cut spend, raise NRI deposit rates to boost economy
Interest rate hike for NRI deposits, bond issue for overseas investors to improve capital inflows in the wake of rout of the rupee and slashing wasteful spending may be among the steps to be announced by Government and RBI tomorrow to kickstart the economy.
The steps will be unveiled amid optimism by Prime Minister Manmohan Singh that some measures being taken to tackle fiscal management will help return the rupee to a "more stable" path.
Union Finance Minister Pranab Mukherjee said he was worried by the continuing fall in the Rupee value and that corrective measures would be taken.
"Yes, of course," he told reporters in Kolkata when asked if he was concerned about Rupee depreciation. "We will take some corrective steps," said Mukherjee, who will step down as Finance Minister on Tuesday to take his Presidential campaign forward.
Hit by a weak global sentiment and subdued local macroeconomic performance, the rupee has lost over 25 per cent in the last one year. It also breached the 57 level against the dollar on June 22.
Market analysts expect RBI to announce an increase in interest rates for deposits of Non-Resident Indians. They also expect government to announce a bond issue to attract inflows. "RBI may increase the interest rate on FCNR(B) deposit further and announce the issuance of bonds for Non-Resident Indians to address the issues in the short-term" Crisil Chief Economist D K Joshi said.
On the falling rupee, the prime minister said India operates a system which is market based exchange rate.
"We intervene only to curb violent fluctuations. I am confident that measures that I outlined will also return Rupee also to a more stable path," he told reporters on his way back home from Mexico and Brazil
In his media interaction, the prime minister spoke of government's commitment to tackle problems of fiscal management effectively and credibly. The problems with regard to management of the balance of payments deficit on the current account will also be tackled, he added.
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