India proposes new steps to stem rupee slide

India on Wednesday stepped up its battle to halt the rupee's plunge, proposing to raise funds abroad through "quasi-sovereign" bond issues and curtail some imports to reduce its huge current account deficit. Finance Minister P. Chidambaram made the announcements as the currency sank to 61.20 rupees to the dollar -- within a whisker of its lifetime low of 61.21, hit earlier in July. "The balance sheets of some of our public-sector units are quite strong to raise funds abroad -- these would be quasi-sovereign issues," Chidambaram told reporters in New Delhi. "Quasi-sovereign" means buyers of the issues would have the Indian government's guarantee against default. "We need to stabilise the rupee," the Harvard-educated lawyer told a news conference marking one year since he took over the finance ministry for a third time in his long political career. The rupee rallied after Chidambaram's reiteration of India's determination to defend the currency, strengthening to 60.40 rupees. He also promised the government would further relax foreign direct investment rules to encourage inflows from abroad and take fresh steps to promote exports and reduce imports. The government is battling to narrow a record current account deficit -- the broadest measure of trade and investment flows. The deficit has been a key factor pressuring the rupee, along with a sharply slowing economy and fears of a reduction in US stimulus that has spurred investor flows to emerging markets. "We have to look at goods which we can produce and need not import in such large quantities (such as electronics) or goods which are clearly non-essential which some may call luxuries," Chidambaram said. India, the biggest buyer of gold, has already sought to reduce imports of bullion which is the second largest contributor to the current account deficit after oil. The government is also mulling relaxing foreign borrowing rules and ways to draw investments from global sovereign wealth funds, and deposits from the vast diaspora of over 25 million Indians abroad to bolster exchange reserves. He said the government might make a sovereign bond issue "but I will not rush into any decision". India's rupee woes have heightened speculation the nation could be headed for a crisis of the sort it suffered in 1991, which forced a bailout by the International Monetary Fund. In an interview published this week, veteran economist Arvind Panagariya warned India's foreign exchange reserves were too low. On Tuesday the central bank kept benchmark interest rates on hold and sounded more dovish than expected on monetary policy, sending the rupee into a new downward spiral. The currency's weakness is the latest blow for the scandal-tainted coalition of Premier Manmohan Singh, which is keen to see the economy pick up before elections due in 2014. Singh, accused of policy inaction throughout most of his time in office, pledged in a speech late Wednesday to accelerate economic reforms and act "boldly and decisively". "We will prove the naysayers and Cassandras of doom wrong," said Singh, who engineered India's exit from the 1991 monetary crisis. Chidambaram conceded for the first time economic growth might be just 5.5 percent this year -- below the over six percent he initially forecast. Economists already see growth in the five percent range. But despite the economic gloom, Chidambaram said "there is a very good chance" the left-leaning Congress, badly lagging in opinion polls, could win a third term at the head of a new coalition. The pro-market minister has been mentioned as a potential prime ministerial candidate amid mounting doubts about whether ruling party heir-apparent Rahul Gandhi wants the job.