15 September 2018

Govt Announces Measures To Check Rising Current Account Deficit

Govt Announces Measures To Check Rising Current Account Deficit


The government has announced an array of steps to check the rising Current Account Deficit (CAD), and the fall in rupee. The steps include removal of withholding tax on rupee-denominated bonds known as Masala bonds issued till March 2019, relaxation for Foreign Portfolio Investment (FPI), and curbs on non-essential imports. The government has decided on a number of steps to contain CAD, which widened to 2.4% of the GDP in the first quarter of 2018-19. 

What is CAD?
The current account deficit is a measurement of a country's trade where the value of the goods and services it imports exceeds the value of the goods and services it exports.

The steps to be taken by the government to attract dollar inflows into the country include:
  • Reviewing of mandatory hedging condition for infrastructure loans. 
  • To permit manufacturing sector entities to avail of External Commercial Borrowing (ECBs) up to $50 million with minimum maturity of one year, instead of the earlier limit of three years. 
  • Removing restrictions with respect to FPI exposure limit of 20 per cent in corporate bond portfolio to a single corporate group or company or entity and 50 per cent of any issue of corporate bond. 
  • Removal of withholding tax on rupee-denominated bonds known as Masala bonds issued till March 2019. 
  • Removing restrictions on Indian banks, market making in masala bonds, including restrictions on underwriting of masala bonds. 
  • Relaxation for Foreign Portfolio Investment (FPI) and curbs on non-essential imports. 
Source- The Indian Express

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