Finance Minister P Chidambaram’s visit to Mumbai, scheduled for October 10-15, would primarily be aimed at reassuring foreign institutional investors (FIIs) and sending a signal the government isn’t a greedy entity; it is ready to give, not just take.
The finance ministry announcement on reducing collateral for FIIs may coincide with Chidambaram’s visit. According to margining rules of the Securities and Exchange Board of India, FIIs have to submit collateral to cover the value of their trade. Currently, the entire collateral has to be in cash and this locks up the funds for at least one trading day. FIIs have demanded instruments such as government bonds, fixed deposits, mutual funds and other approved securities be allowed as collateral for trade in the Indian market.
To show sensitivity to states caught in the grips of a drought (Maharashtra, Karnataka and Gujarat are the worst hit), the government is also considering announcing a debt waiver scheme by the year-end. However, it is hardly a coincidence that polls in Gujarat are slated to be held at the end of this year, while elections Karnataka would be held next year.
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Considering the Gujarat and Himachal Pradesh assemblies must be in place by January 15 2013, and the fact that the electoral process takes about 45 days, bureaucrats and party managers expect elections in these states in the first fortnight of December (around December 10 in Gujarat and December 15 in Himachal Pradesh). The Election Commission is expected to issue a notification in this regard around 15 November. Importantly, once the model code of conduct kicks in, the Centre and state governments can’t announce any policy measure.
Before the Election Commission issues the notification, the government could announce a debt waiver package. As a package of even Rs 10,000 crore could raise the fiscal deficit from 6.1 to 6.2 per cent, some excise and disinvestment measures suggested by the Vijay Kelkar committee---increasing excise on goods that attract six per cent excise and do not affect public service to be increased to eight per cent, and pruning the negative list of excise to include high-end goods---might be accepted to allay expenditure worries and fend off a ratings downgrade.
Analysts say data on gross domestic product, scheduled to be released on November 30, is likely to show incremental improvement. This, along with expectations the Reserve Bank of India may cut the repo rate on October 30, would add to the perception the economy is stabilising.
Though there is no clarity on the timing of the winter session of Parliament yet, the government would try to delay this as much as possible. The winter session is usually held at the end of November. However, in case electoral preoccupations are cited and the session is shortened or held in 2013, it would result in a short window of undisturbed decision-making for the government.
If the winter session is held in 2013, the first half would be devoted to the president’s customary address to the joint first session in a new year and the motion of thanks. Though the ruling coalition would have to face an angry opposition, what it does in the next 60 days would set the stage for the next one year.
