Chidambaram for further easing of rules for FDI

Finance minister P Chidambarm today said India needed to further relax its investment rules in order to attract more foreign investments. The finance minister was speaking at a function in Ahmedabad today.

The government, which has already relaxed rules for foreign direct investment (FDI) across various sectors of the economy, is seeking increased inflow of foreign funds to cushion its high current account deficit.

India's current account deficit is estimated at around 4.8 per cent of its gross domestic product (GDP) for the fiscal year that ended in March.

This, along with volatile flows of foreign funds in and out of the country has dented the value of the Indian rupee by over 9 per cent since May this year. The rupee is the worst performing emerging Asian currency.

Chidambaram said the government was considering all options, including a sovereign bond sale and selling debt to non-resident Indians, to attract dollar inflows.

India is faced with a double dilemma of falling rupee and falling exports and the Reserve Bank of India (RBI) is hard put to work on an all fronts. It is tasked with holding the price line while at the same time keeping liquidity as well.

On top of it, RBI and the government are under pressure to act to revive a struggling currency and fund a record current account deficit as also reining in the government's rising fiscal deficit.

Chidambaram also egged on the RBI to ease lending rates to help promote economic activity rather than limiting its role to maintaining price stability.

''I do not expect RBI's liquidity measures to result in a hike in bank lending rates,'' the finance minister said.

''The mandate of a central bank is to ensure growth promotion and employment generation in addition to price stability,'' he said.

He also did not expect any sudden increase in banks' lending and borrowing rates.

''Bankers have assured me that they will fully meet the credit needs of the industry,'' Chidambaram said.

Chidambaram also pointed to the need to curb growing demand for gold, which rose in July after a dip in June.

Gold imports were at 141 tonnes in April and rose to 162 tonnes in May.

"About 302 tonnes of gold was imported in two months. If we multiply it by six, then 1,800 tonnes of gold is to be imported (in the fiscal). So where is the money to import 1,800 tonnes," he asked.

This is despite the government increasing customs duty on gold to 8 per cent and the Reserve Bank imposing a series of restrictions on import and financing of gold.

India imported 845 tonnes of gold in 2012-13 for which the nation had to shell out $50 billion (about Rs3,00,000 crore) in foreign exchange, he added.