Welcome the step of government of providing confidence in economic policy, says Rakesh Mohan

As the government battles a falling rupee and rising fuel prices, the Prime Minister takes stock of the situation. The government late last evening announced five steps aimed at bringing in the much needed dollar inflows.

Step number 1 is that mandatory hedging conditions for infrastructure loans will be reviewed. Secondly, manufacturing entities will be allowed to access ECBs of up to $ 50 million with 1-year maturity. Step number 3 is that the government has removed exposure limits for FPIs vis-à-vis corporate bond portfolio of a single group. Fourthly, the government has also exempted masala bonds issued in FY19 from withholding tax and finally, the government has removed restrictions on Indian banks' market-making in masala bonds.

At the heart of Friday's measures, is an intent to increase foreign capital inflows, by removing some irritants and impediments and signalling that India is open to foreign investment. Authorities believe that the measures are likely to bring in $ 8-10 billion over time.

Post the Economic Review meet, the finance minister said that they hope to make up on the direct tax front.

S Narayan, Former, Finance Secretary, Ananth Narayan, professor at SPJIMR, Rahul Khullar, former chairman TRAI and former secretary, Ministry of Commerce, Rakesh Mohan, former deputy governor, Reserve Bank of India (RBI), Gautam Chhaochharia, MD and head-India research at UBS, Jayesh Mehta, MD and country treasurer-Bank of America, Upasna Bhardwaj senior economist at Kotak Mahindra Bank, Yashwant Sinha, former finance minister and Ashima Goyal, member, PMEAC shared their views and outlook.

“I was really very happy to hear the statements from the Finance Minister. That is exactly what I was going to suggest that the government has to instil confidence in the economy and this statement, which emphasizes the maintenance of fiscal prudence, the sticking to the 3.3 percent fiscal deficit target, noting that inflation is very much under control as expected, noting that growth will possibly be higher than what was projected also the trend of taxes both direct taxes and indirect taxes, even there might be some questions to do with the collection of the indirect taxes and then also confidence in terms of disinvestment target. All in all, in my view, the exact thing, the correct thing for the government to do in these circumstances is to provide confidence, stability in economic policy rather than a sort of panicky, knee-jerk measures because of the exchange rate movement. So I very much welcome this step,” said Mohan.

“It is good that government is holding on to this policy on no excise cut as far as petroleum products are concerned. It will certainly help them maintain the fiscal deficit target. But how will it respond as far as electoral politics is concerned that remains to be seen. But having said that I would like to ask you about the nature of the present crisis, if it is a crisis. What is it? Is this is a balance of payments crisis. Quite clearly it is not. Because after all we are holding almost USD 400 billion worth of foreign exchange and it has got reduced by USD 26 billion otherwise it was way beyond USD 400 billion so it is not a balance of payments crisis. What is a nature of the crisis? The nature of the crisis is undue volatility in the exchange market leading to a sharp depreciation of the rupee over the last few days.  Now, clearly, management of the exchange market is the responsibility of the RBI and any old timer will tell you what are the various measures in which the RBI cools the exchange market. But nowhere is it prescribed that you hold the value of the rupee at a certain level. The value of the rupee is market determined, your responsibility is to cut undue volatility. So, with all the reserves that we have that should happen and as Rakesh Mohan was saying if the rupee is overvalued, nobody would have minded if the rupee had depreciated by as much as it has done. Over a period of time, instead of rushing over it over the last two to three days. So I think what needs to be done is not be bothered about deprecation of the rupee so much as to ensure that the markets are cooled down, that there is no undue volatility and it is business as usual,” Yashwant Sinha said.