Finance Minister Nirmala Sitharaman has said that the government's recent measures to exempt withholding tax on interest income and capital gains tax on investments made by foreign investors in government securities (G-secs) are only the beginning. She signaled that additional reforms are in the pipeline to further encourage foreign capital inflows. She added that ‘We recognise that we need more foreign capital to come in’.
Recently, the Reserve Bank of India (RBI) had allowed banks to access the RBI’s swap facility for Foreign Currency Non-Resident (Bank) (FCNR(B)), deposits with maturities ranging from 3-5 years till September 30. The facility would allow banks to swap US dollar deposits with the RBI, and manage currency risks. Also, to shore up foreign capital inflows include a concessional forex swap facility to encourage PSUs to raise external commercial borrowings (ECBs) until September 30.
Sitharaman said under the framework announced by the RBI, currency hedging will be at the expense of the RBI. She said ‘And as a result, the banks can now go unfettered, to raise their own fund. So we have taken a very calibrated approach to make sure that the markets do see the required investments’. She also said the Indian economy is facing ‘severe strain’ from import of key raw materials, as well crude oil and fertilisers. She said that the global situation is changing almost every week with newer challenges emerging and the country has to be ready for every such ‘exigency’.
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