India Dispatch: India has cleared the way for 1.83 trillion rupees of infrastructure projects in an effort to kick-start investment as the country battles with slowing growth and a currency that fell to yet another all-time low yesterday.
India to spend Dh100bn for infrastructure projects
India has cleared the way for 1.83 trillion rupees (Dh102.34 billion) of infrastructure projects in an effort to kick-start investment as the country battles with slowing growth and a currency that fell to yet another all-time low yesterday.
P Chidambaram, India's finance minister, announced that the government's cabinet committee on investment, set up to fast-track clearances, had approved 36 projects across sectors including, power, oil, railways, and roads to remove bottlenecks that were stalling work on them.
"The message we are sending is that the investment cycle has restarted," Mr Chidambaram was quoted by Reuters as saying.
But the move failed to cheer markets.
The announcement followed the approval of the controversial Food Security Bill by the lower house of parliament on Monday evening. This paves the way for a costly subsidised food programme that investors fear will worsen the country's budget deficit and reinforces concerns that the government is focusing on votes ahead of the general election next year rather than improving the country's economy.
In reaction, the rupee tumbled to a record low of more than 66 against the US dollar yesterday. Stock markets also reacted with falls. The benchmark S&P BSE Sensex closed down 590 points or 3.18 per cent.
An exodus of capital from emerging markets was triggered by signals that the United States Federal Reserve would wind down its stimulus programme. Indian stock markets and bond markets have suffered in recent sessions as foreign investors have pulled out funds. The rupee's slide is matched by concerns about the wide current account deficit and weaker growth in India further dampening investor sentiment.
"There are multi-dimensional fronts to the drivers for this kind of free fall we are seeing," said Naveen Mathur, the associate director of commodities and currencies at Angel Broking in Mumbai.
"These outflows from the emerging markets have largely hit India because the reforms didn't take place when they were supposed to be acted upon - when the market was good, when the economy was doing well," he said. "Today, what we are seeing is part of that particular process which didn't happen and the effects are coming on to the markets, to the financial position of the economy and at the same time leading to the depreciation of the rupee.
"We all know there have been problems in India: the current account deficit, the fiscal deficit, the inflation, the interest rates - everything is on the high side and it's been on the high side for quite a long time."
Despite announcements such as the clearance for infrastructure projects, the benefits would take time to filter through.
"The problems would not go away in the short term," said Mr Mathur. "Even with the actions which the government is taking or about to take, the results would come with a lag period and those results may happen some months or years afterwards."
A wave of measures unveiled by the Reserve Bank of India and the government over the past couple of weeks designed to reduce outflows of capital from the country and reduce volatility in the currency have lent little support to the rupee so far.
India's economic growth slowed to a decade low of 5 per cent in the last year, which is well below the levels of 8 per cent that the country needs to create jobs for its population of more than 1.2 billion.