New Delhi: The government on Friday too essential steps to check the rupee fall due to the widening Current Account Deficit or CAD which included removal of withholding tax on Masala bonds, curbs on non-essential imports, relaxation for FPIs etc.
To take stock of the economic situation currently, the Prime Minister Narendra Modi chaired an important meeting in this regard and these decisions were finalized at last.
RBI Governor Urjit Patel and top financial officials of the finance ministry briefed PM Modi on the health of the prevailing economy.
A top finance ministry official said that all these measures are expected to have a positive impact of approximately USD 8-10 billion.
After the meeting, Finance Minister Arun Jaitley briefed the media and said that the government has decided on “five steps” to contain CAD, which widened up to 2.4 percent of the total GDP in the first quarter of 2018-19.
Key issues were discussed during the meeting and decisions in this regard are likely to come out in the next few days, he said.
And today too, more discussions are expected to be taken up during a meeting with the Prime Minister, Mr. Jaitley said.
Despite having “strong fundamentals”, the Indian economy is getting affected by the external factors like policies being implemented by the US, trade war and crude oil prices.
The minister further said “there are some issues on which immediate action is needed,” while announcing several steps to increase the inflow of foreign funds into the country and check CAD.
Among the decisions taken, one of them is the mandatory hedging condition for infrastructure loans that will be reviewed. This is regarding external commercial borrowing (ECB).
Mr. Jaitley said that another important decision was taken about permitting manufacturing entities to avail ECB facility with a minimum maturity of one year, instead of the earlier limit of three years.
Moreover, restrictions related to FPI exposure limit of 20 percent will be removed in a corporate bond portfolio to a single corporate group or company or entity and 50 percent of any issue of corporate bond.
These restrictions were imposed on FPIs back in April by the Reserve Bank of India.
Mr. Jaitley said regarding rupee-denominated bonds (generally known as Masala bonds, that it has been decided to do away with the withholding tax on bonds that were issued till March 2019.
The withholding tax currently is 5 percent. And most importantly, it is to be noted here that no Masala bond has been issued so far in the current fiscal.
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