ING Vysya’s Bhardwaj Says India FDI Will Boost Sentiment, Rupee

Upasna Bhardwaj, a Mumbai-based economist at ING Vysya Bank Ltd. comments on India’s decision to allow foreign direct investment in multibrand retail and aviation.

In the biggest policy push of Prime Minister Manmohan Singh’s second term, proposals to allow overseas retailers to own 51 percent of supermarket chains have been enforced now, Commerce Minister Anand Sharma said. Overseas airlines are allowed to own 49 percent of Indian carriers, he said.

“It is definitely a positive move. The entire wish list of the markets is coming true and this will improve sentiments which will bring in more capital flows and support the rupee. Currency markets are going to react positively.”

On the rupee:

“The rupee will strengthen to 53.50 or 53 against the dollar and the RBI will start purchasing dollars and be able to replenish its foreign exchange reserves. The measures will bring in sufficient capital flows and improve the balance of payments. This may increase the liquidity in the system and reduce the need for open market operations by the Reserve Bank.”

On interest rates:

“The Reserve Bank could be under political pressure to act on Sept. 17, but I believe it will pause in this meeting and then re-look at its decision in the next policy. It may maintain the status quo this time. The impact of the decision will be clearer as we go forward.”

On ratings downgrade:

“It definitely pushes back the possibility of a downgrade by the ratings companies but doesn’t completely rule it out because there is a sword hanging on the fiscal side. Despite the reforms, there is a threat on the fiscal side. The credit rating threat was looming, I think that has been pushed further back.”