There have been quite a few interesting moves on part of the government, which bode well for the INR in the near future. First ofcourse is that the government has specified that NRI’s and portfolio investment is allowed in the 26% FDI cap in insurance. This was not specified earlier. Now that this has been done, the Insurance sector is likely to attract some more investment. However, the real clincher for this sector still remains elusive. The government has been trying to raise the FDI limit in the sector to 49%, but has not managed to do so because of political opposition. Since the limit is mentioned in law, only a parliamentary process can raise the cap on FDI in Insurance. Majority insurance companies operating in the country are joint ventures between Indian companies and foreign partners.
Another interesting development was the INR gaining two straight session on Thursday the 6th of Feb. This was clearly on the back of the announcement by RBI, late on Wednesday, that the government had cancelled its previously deferred bond sale of 150 billion rupees. This is no doubt a show of confidence on the part of the government of meeting its fiscal deficit target of 4.8 percent of GDP for 2013-14. Add to this the ongoing mobile spectrum option, and you may well see the rupee strengthening further, even trading below 62-to-a-dollar in the near term. The spectrum option will certainly improve the government’s cash position… a crucial event considering we are on the verge of the General Elections.