India aims to boost rupee with bond issues

NEW DELHI (AFP) – India said Wednesay it would ask state firms to raise funds abroad in "quasi-sovereign" bond issues and might also raise import taxes on luxury goods as it struggles to revive the rupee.

The announcement by Finance Minister P. Chidambaram came as the currency sank to 61.20 to the dollar, within a whisker of its lifetime low of 61.21 rupees hit earlier in July.

"The balance sheets of some of our public-sector units are quite strong to raise funds abroad -- these would be quasi-sovereign issues," Chidambaram told reporters.

"Quasi-sovereign" means that the buyer of the issue would have the Indian government's backing against any default. India has never defaulted on any of its debt.

"We need to stabilise the rupee and going forward need to take steps to promote (economic) growth," Chidambaram told a news conference marking one year since he assumed the reins of the finance ministry for a third time.

The minister also promised that the left-leaning Congress government would further relax foreign direct investment policy, and raise interest subsidies to promote exports.

He said the government was also considering raising luxury taxes on some unnamed imported goods.

The government is struggling to narrow a record current account deficit -- the broadest trade measure -- which has been one of the central factors pressuring the rupee, along with a sharply slowing economy and lack of progress on liberalisation reforms.

India was looking to "curb demand for non-essential luxury items", he said, without elaborating.

The government is also considering relaxing foreign borrowing rules and seeking ways to draw investments from global sovereign wealth and pension funds, and deposits from the vast diaspora of over 25 million Indians abroad.

In addition, Chidambaram said the government might make a sovereign bond issue to raise foreign exchange "but I will not rush into any decision".

On Tuesday the central bank kept benchmark interest rates on hold at a policy meeting and sounded less hawkish than expected on monetary policy, pushing the currency lower.

India's economic woes have led to increased speculation that it could be headed for an economic crisis of the sort it suffered in 1991, which forced a bailout by the International Monetary Fund.

In an interview published this week, veteran Indian economist Arvind Panagariya warned of the country's dependence on foreign capital and said its foreign exchange reserves were too low.

The rupee's weakness is the latest blow for the scandal-tainted coalition of Premier Manmohan Singh, which is keen to see the economy pick up before facing voters in polls due in the first half of 2014.