Govt taps inputs from public sector banks to lure foreign capital

In a bid to attract foreign investments and stabilize the Indian rupee, the government has convened a two-day meeting with state-owned banks. This annual PSB Manthan event, scheduled for August 17-18 in New Delhi, aims to address the widening current-account gap, largely driven by high energy import bills, according to senior bankers.

Finance Minister Nirmala Sitharaman will review the proposals presented by the bankers on August 18. The meeting will focus on deposit mobilization, attracting investors for global capability centers in India, strengthening funds for medium and small enterprises, and supporting the agriculture and horticulture sector.

Key attendees include the CEOs of all Public Sector Undertaking (PSU) banks, such as State Bank of India's CS Setty, along with representatives from the National Bank for Financing Infrastructure and Development, Power Finance Corporation, National Housing Bank, and Small Industries Development Bank of India.

Economists believe that fresh foreign capital inflows would bolster foreign exchange reserves, stimulate domestic manufacturing, and foster long-term economic growth. Current Account Deficit (CAD) is a result of domestic savings not enough to fund domestic investment, which can lead to a growth cycle dependent on investment, creating jobs and capacity.

Foreign direct investments (FDI) are crucial, as India runs a CAD. The Reserve Bank of India (RBI) introduced a dollar-swap facility on June 5, offering concessional rates for foreign currency deposits and external commercial borrowings by state-run lenders. India attracted $40 billion in foreign currency inflows until July 30 under this program, with FCNR deposits contributing $36 billion.

However, FCNR deposits can only temporarily slow the rupee's depreciation. The RBI Governor, Sanjay Malhotra, emphasized that FDI is more durable, sticky, and preferable. The government is signing trade agreements to indirectly attract investments, ensuring a stable currency protects returns in dollar terms for foreign investors.