New Delhi: India eased overseas borrowing rules for firms on Tuesday to speed up work at infrastructure projects as the cash-strapped government tries to boost a slowing economy.
Separately, data showed the current account swung into a surplus in the January-March quarter, but this failed to prevent a wider deficit for the full 2008-09 fiscal year as oil imports rose and exports fell sharply due to the global slump.
Analysts said portfolio inflows into local equities and the relaxation in overseas borrowing rules could help the rupee to appreciate gradually this year.
Foreign portfolio flows of a net $7.3 billion into local shares since mid-March have helped the rupee to rebound from a record low of 52.2 to the dollar hit in early March.
On Tuesday, the finance ministry said it had eased overseas borrowing rules for developers of tax-free special economic zones, township projects and non-banking finance firms engaged in funding infrastructure projects.
“The relaxation in overseas borrowing rules will have a positive impact ... Right now the probability of appreciation in the rupee is high,” said DK Joshi, principal economist at rating agency Crisil.
The Reserve Bank of India (RBI) said the current account deficit for 2008-09 (April-March) widened to $29.82 billion, or 2.6% of gross domestic product (GDP) from 1.5% in the previous year. The current account was $4.75 billion in surplus in the March quarter, after a revised deficit of $13.03 billion in October-December.
“(The) outlook for the balance of payments looks better in the current fiscal (year) as the trade deficit should still remain low while flows like portfolio inflows improve,” said Anubhuti Sahay, an economist with Standard Chartered Bank.
The RBI said the balance of payments surplus in January-March was $300 million, compared with a deficit of $17.88 billion in the October-December quarter.
The deficit blew out to its highest in 18 years in the December quarter as the global crisis choked inflows, but the fall in oil prices since mid-2008 lowered the trade gap.
India’s total external debt narrowed slightly to $229.9 billion at the end of March, from $230.85 billion at the end of December.
“Overall, the balance of payment numbers further reiterates our view on rupee where we expect it to appreciate gradually as we move further into 2009,” Sahay said.
India’s exports have been falling since October as recession in developed economies slashed demand, while imports have also declined due to lower crude import costs and sluggish demand in a slowing economy.
The Indian economy grew at its slowest pace in six years at 6.7% in 2008-09, and policymakers forecast growth would touch 7% this year.
Data on Tuesday showed the fiscal deficit in April-May at Rs907.58 billion ($18.9 billion), or 27.3% of the full-year target of Rs3.33 trillion or 5.5% of GDP for 2009-10.
Last year, the fiscal deficit ballooned to 6.2% of GDP as higher fuel and food subsidies and then a series of stimulus measures boosted government spending.
Finance minister Pranab Mukherjee is to present the full year budget on 6 July, and it is widely perceived that the government may offer more stimulus to accelerate growth.
But the high fiscal deficit and borrowing target has left little room for the government to invest more on infrastructure. It is now encouraging private firms to tap overseas markets to access funds for big projects.