The government said on Tuesday it had approved a raft of infrastructure projects worth Rs 1.83 trillion to revive economic growth and restore investor confidence after a crash in the rupee to record lows.
“The message that we are sending is that the investment cycle has restarted, and we are pushing it. It is gathering pace,” Finance Minister P. Chidambaram told a news conference to announce the kick-start for 36 stalled projects in sectors from oil, gas and power to roads and railways.
He said a cabinet panel had cleared 18 power projects, alone worth Rs 830 billion.
The announcement did not lift the rupee, which was trading at 65.39/41 per dollar at 1047 IST, close to the record low of 65.56 reached last week.
Dealers said it was partly depressed by concerns over parliament’s approval on Monday of a plan to provide cheap grain to the poor at a cost of nearly $20 billion.
“It’s not out of choice, but out of compulsion that the finance minister is announcing so many things,” said G. Chokkalingam, managing director and chief investment officer of Centrum Wealth Management in Mumbai.
“The trinity of the fiscal deficit, slowing growth and an unstable currency is hitting us badly. In addition to these, the government has passed the food security bill which may put fear in the mind of rating agencies.”
It will also take time for these projects to have any impact on the economy, which will reduce the immediate affect of the news in financial markets.
“These projects have long gestation periods. So it will take several months, maybe years to achieve the desired economic activity,” said Hitendra Dave, head of global markets at HSBC India.
“I think to the extent that the sheen had worn off because of decisions not taken, this will help to undo the damage of sense of indecision in the government.”
Chidambaram said that the rupee had “overshot its true level”, and added that the food security bill would not lead to the government overshooting its fiscal deficit target.
“As I said in parliament, every emerging market is challenged today. So, India is also challenged, and the impact is felt both on the equity market as well as the currency market,” he said.
“I think we’ll simply have to be patient, be firm, do whatever is required to be done, and the rupee will find its appropriate level. What I said a few days ago, I still maintain it. The rupee has overshot its true level, it’s undervalued. Others have confirmed it. And we have to be patient and we have to be firm and we have to do what requires to be done.”
Nifty falls nearly 3%; food bill raises deficit concerns
The NIfty fell nearly 3 per cent as blue chip shares including HDFC Bank slumped on concerns that the passage of food security bill will weigh on the country’s fiscal and current account deficits, raising fears of a sovereign rating downgrade.
The lower house of parliament approved a plan worth nearly $20 billion on Monday to provide cheap grain to the poor.
HDFC Bank Ltd fell 5.76 per cent, while ITC Ltd lost 4 per cent.
The broader Nifty was trading down 2.78 per cent, while the benchmark BSE Sensex slumped 2.56 per cent as of 1225 IST.