The overall mood about the Indian economy was gloomy in 2011-12. The sense of gloom is not difficult to appreciate as the Global economy slowed down, investors lost tonnes of money in stock market, myriad issues facing India such as high Inflation, increase in interest rates, outflow of forex owing sell-off by foreign institutional investors on the bourses, steep increase in the Current Account Deficit, corruption levels at various levels, etc. Learning lessons from the 2011-12, the government is trying to take various measures to tame the inflation, reduce current account deficit and boost the morale of foreign Investors. Some of the recent measures are:
- Allowing the Qualified Foreign Investors (QFIs) to keep money as long as they wish before investing in shares.
- Separate Investment limit of $ 1billin for QFIs to put money in corporate bonds and mutual fund debt schemes.
- Allowing Individual Investors and Investors Associations from Gulf Countries to invest as QFIs into the Indian Equity market. In addition to this, the Finance Minister is planning for road shows in five countries i.e. Saudi Arabia, UAE, Bahrain, Oman and Kuwait to woo the investor community to invest in Indian Equity Market.
- Ministry of Corporate Affairs is proposing to implement the tough biz responsibility norms on the corporates to boost the Investor confidence.
- External Commercial Borrowings (ECB) to be allowed to part finance Rupee debt of existing power projects.
To contain the on-going concern of depreciating rupee, RBI has taken move to restrict all foreign exchange earners to retain only maximum 50% of forex earning in EEFC Account (as against earlier permitted 100%) and surrender the balance for conversion to rupee balances. In addition, Government is seriously pursuing towards allowing FDI on multi-brand retail an allowing foreign airlines to pick up equity in domestic airlines.
As a forward looking step, the Government has already taken various forward-looking measures in the year 2011 viz,:
- The New Manufacturing policy approved on October 25, 2011, has set share of manufacturing in GDP from 16% to 25% and will create 100 million additional jobs in manufacturing by 2022. The Policy also envisages setting up seven National Investment and Manufacturing Zones with single-window clearance and flexible labour laws.
- Strategy paper entered in May to double India’s exports to $500 billion by 2103-14 with the intent to improve trade. Subsequently, India entered into a comprehensive economic partnership agreement with Japan in August.
- New Draft Telecom Policy was formulated, which purports to achieve 100 per cent rural teledensity by 2020 from the present 35 per cent.
- Deregulation of interest rates on savings bank deposits.
- RBI and SEBI came up with guidelines for setting up Infrastructure Debt Funds either as mutual funds or NBFCsto facilitate long-term debt finance for infrastructure projects.
Though the rupee has been in free fall mode at present, due to increasing trade gap, coupled with a massive outflow of forex owing to sell-off by foreign institutional investors on the bourses—as a consequence of the Greek debt crisis leading to a widening CAD, let us all hope that the above measures will positively help the Indian economy and corporates to overcome the current economic challenges.
With regards
Ramakrishna Gupta R