The government is slowly waking up to initiate some unconventional measures to stop the instability on the rupee front and to minimize the possible impact out of it.
So far the most important of such measures came from the Petroleum Ministry to promote oil imports from Iran. In the case of imports from Iran, the advantage is that payment can be made in Rupee. But this measure has some risk in it. In the medium term, the US may come out with pressure to stop the practice to make its Iran isolation drive successful. Similarly, banks which are mediating Iran trade may also face US ire.
Still, oil import from Iran is a thinkable option in the very short run and is helpful to support the rupee and government’s fiscal health at least a couple of months.
Oil import and the subsidy burden are the top priority given their implication on rupee value and government’s financial health. The targeted fuel subsidy under the budget is Rs 65000 crore. But given the rupee depreciation, it may end at Rs 171000 crore, seriously eroding the government’s financial survival.
Another set of measures is to limit unnecessary imports by raising tariffs on them. Here, the government is limited by WTO bindings and different free trade arrangements with other countries. The Commerce Ministry can search for WTO binding and non-retaliatory tariff measures which may curb imports and raise domestic production. This can be implementable in the case of electronic goods and household durables.
Another unconventional measure at the disposal of the RBI is to enhance NRI deposits through novel measures. The historically proven difficulty in depending on NRI deposits to earn crisis management money is that they may withdraw such deposits at the worst time. So, the NRI deposits can be considered by accommodating such risk factors as well.