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There is a liquidity problem, says FM

Source: PTI
October 08, 2008 14:10 IST
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Finance Minister P Chidambaram admitted on Wednesday that there is liquidity problem in the markets, but assured that the government will address it.

He, however, maintained that the fundamentals of the Indian economy are still strong.

Meanwhile, the Indian government on Wednesday ruled out launching of dollar-denominated bonds but indicated that it may further relax overseas borrowing norms and raise FII investment limit in debt instruments to help companies tide over the liquidity crunch created by global financial crisis.

"There is no proposal to launch sovereign long-term dollar-denominated bonds as of now," a finance ministry official said when asked whether the government is planning to hit the overseas market to raise funds.

However, the finance ministry is considering further liberalisation of external commercial borrowings (ECB) norms for companies besides raising FII limits in Indian debt market.

At present, FIIs are allowed to invest in the Indian debt market up to 8 billion dollars, of which $3 billion can be invested in corporate debts and $5 billion in government securities.

On Tuesday, the government included mining, exploration and refinery sectors under the ambit of infrastructure so that they can access overseas borrowings more liberally up to $500 million into India for rupee capital expenditure.

Infrastructure includes seven sectors -- power, telecommunication, railways, road, sea port and airport industrial parks and urban infrastructure (water supply, sanitation and sewage projects).

Only a fortnight ago, the Union finance ministry had said that it does not see any payment related problem in capital markets owing to the financial turmoil in the United States and other markets.

"As of now turbulence may have some impact on capital markets, but payment obligations are being met currently and there won't be any payment related problem," finance ministry sources said.

Also there is no definite and noticeable trend of pull out by foreign institutional investors (FIIs) from the capital market, sources said.

The finance ministry sources had further said that there is no precise trend which indicates that FIIs are withdrawing from the capital markets.

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