We don't need NRI money... yet: official

India doesn’t need to raise money by offering a bond issue to Non-Resident Indians (NRIs) or even a sovereign issue, a senior Indian government official said yesterday even as the rupee fell to a record low of Rs64 against the US dollar and Rs17.42 against the dollar-pegged UAE dirham.

“We don’t need that kind of money at this moment,” said Arvind Mayaram, Economic Affairs Secretary, Government of India, maintaining that any such step would be seen by the market as the government’s failure to raise money through other means, and would therefore lead to more panic in the financial markets.

He added that the Indian government believed that it is business as usual and that the markets were over-reacting to the country’s fiscal woes.

In a conference call organised by Nirmal Bang Institutional Equities, Mayaram downplayed the crisis by assuring the markets that India was in a good position to plug the ballooning capital account deficit through committed borrowings.

“We are getting $11 billion as against the requirements of $6 billion to finance the current account deficit,” he reportedly said during the conference call. “Issuing sovereign bonds and NRI bonds will create further unwarranted panic,” he said.

Mayaram said that the government of India doesn’t intend to impose capital controls as it had enough reserves to fund the deficit.

“We’ve done our math,” he said, adding that the government was confident of limiting the country’s current account deficit at 3.7 per cent and that India’s GDP would grow by at least 5.5 per cent in the current fiscal year.

The Indian rupee recovered to Rs17.20 against the UAE dirham and Rs63.18 against the US dollar by the end of the day yesterday, but is still down almost 15 per cent since the beginning of 2013, and is among the world’s five worst performing currencies this year.

The government, however, still thinks that it is business as usual, and that apathy provides clues to why the rupee has continued to depreciate and is down more than 22 per cent in less than 11 months, or over 2 per cent monthly decline on an average since October 2012.

The rupee’s fortunes look worse over a longer period. Since January 2008, the rupee has shed more than 60 per cent of its value against the US dollar even as the government continues to believe that market concerns are unfounded. “There is a kind of sense of panic in the market. We believe it is completely unfounded,” Mayaram said yesterday.

The government perhaps needs to be reminded that bond yields have spiked to a five-year high and the rupee yesterday fell past Rs64 vs. $1 for the first time. India is arguably emerging as the face of the global emerging markets sell-off as the US government mulls a tapering off of its quantitative easing programme in September, but there is no denying that fundamental flaws in the country’s economy and an irrational exuberance on the part of foreign and local investors in the past couple of years are the primary reasons for the mess the country’s economy finds itself in.

Banning Indian expats from carrying TVs back home (which, by the way, they buy with the foreign currency they earn and, therefore, it doesn’t have any negative impact on the rupee’s value) or snubbing their potential contribution by way of a NRI bonds as panic-inducing is not going to help at all.

Hopefully, there is some truth in Mayaram’s statement that the government has done its math but so far, the market hasn’t seen any signs that the government’s done its homework.

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