Chidambaram dismisses claims that the measures issued by the government were to control capital.
Below is an edited transcript of the reaction on CNBC-TV18
Q: Experts have sought more clarity in the measures taken by the RBI and the State Bank of India (SBI) chairman sought clarifications on the deregulation on NRE deposits. How long does the government intend on keeping that deregulation in order because the economic affairs secretary said that these measures were only temporary and would be wound down once the rupee stabilises?
A: The secretary of economic affairs was referring to the other RBI circular which stipulated that that corporates could take out 100 percent of their networth under the automatic route. There is another part of the circular, which I believe, says that if a corporate wants more money for investment abroad, he can approach the RBI for approval.
Under the present dispensation, upto 400 percent networth is under the automatic route and beyond 400 percent is under the approval route. That limit has been lowered to 100 percent under the automatic route and for anything beyond, approval is required. So, it is not a capital control, it is simply a tweaking of limit.
The automatic and approval routes will continue to remain and will be revisited at the appropriate time. I don't think this should be interpreted as a return to capital control. It is not anyone's intention control capital. I am totally opposed to any capital control measures.
Q: What is your comment on the other circular issued by the RBI deregulating the interest rate ceiling as far as the NRE/FCNR deposits are concerned. Do you think that is going to result in significant flows?
A: I did say that two days ago. We have decided that RBI will liberalise the NRE/FCNR deposit schemes, that the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements for such schemes will be waived for the incremental deposits. I also said that for incremental deposits, the interest rates will be deregulated.
This is precisely what the RBI has done and it is a liberalising move. It should be welcomed and banks should be able to mobilise funds under these schemes to take advantage of the fact that the regulations have been relaxed, especially that these incremental deposits will not attract CRR or SLR requirements.
Q: What level of inflows does the government hope to see and what level of funds will the banks be able to mobilise on account of the deregulation that has been announced by the RBI today?
A: I gave out the numbers day-before-yesterday. We intend to contain the current account deficit (CAD) at USD 70 billion. We are doing that by compressing import demand by about USD 5.5 billion. On the supply side, I have indicated the numbers.
One can't be more specific than what I did. I gave the numbers and said that we expect inflows will rise by an additional USD 11 billion. All of this is part of that, but for some things we have not taken credit yet because we have not quantified it yet.
However, everything is being done to contain the current account deficit at USD 70 billion and to finance it fully and safely. It is an important objective, I don't think anyone needs to over interpret or over react to these moves.
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