In the Parliament on Monday, Chidambaram vowed to contain the current account deficit at USD 70 billion for the fiscal year ending in March, or an estimated 3.7 percent of gross domestic product (GDP).

That would be well below the record high 4.8 percent seen in the previous fiscal year, with Chidambaram proposing to meet the current account deficit target with a slew of widely anticipated measures, such as easing rules on obtaining loans abroad and raising deposits from Indians abroad.

However, the measures lacked specifics at a time when worries about the economy remain high, leading the rupee to fall to as low as 61.18 per dollar, not far from a record low of 61.80 hit last week.

The rupee's defence has so far hinged on the Reserve Bank of India's risky gambit of draining cash and shoring up short-term interest rates, but both measures have failed to prop up the currency, making government action crucial in investors' eyes.

Yet Manmohan Singh's minority coalition is facing political gridlock ahead of elections due by next year, with the current session of Parliament that started earlier this month rocked by tensions with Pakistan across the disputed border of Kashmir and clashes in the Jammu region.

"The RBI has taken a number of measures to increase the interest rate at the short end and this has contained the depreciation of the rupee to some extent," Chidambaram said, struggling to be heard amid loud protests from some lawmakers.

"However, we believe that we have to do more to contain the CAD (current account deficit), to reduce volatility in the currency market and to stabilize the rupee," he added.

As widely expected, Chidambaram told the Parliament that India would seek to reduce imports of gold, silver and "non-essential" imports, while also curbing demand for oil.

The Finance Minister also proposed to raise funds abroad, allowing public sector financial firms to sell debt to finance long-term infrastructure projects, raising money via deposits targeted at Indian citizens abroad, and liberalizing guidelines for external commercial borrowings.

"The market was expecting something specific today," said Anjali Verma, economist at PhillipCapital in Mumbai.

"While he speaks of keeping the current account deficit lower at USD 70 billion, my estimate is closer USD 90 billion," she added.

TWIN DEFICITS

Chidambaram's appearance comes after data earlier in the day showed India's exports rose 11.64 percent in July from a year earlier, while imports fell, keeping the trade deficit at USD 12.27 billion, almost the same as June.

The deficit was largely in line with expectations, and did not ease concerns about the current account deficit.

Trade secretary SR Rao, India's top trade official, said uncertainty about the rupee meant companies had yet to see the full benefit of the weaker currency on foreign sales.

"A stable exchange rate helps exports. Volatility does not permit exporters to get full value from the depreciation," Rao said.

India is due to post industrial output and consumer prices data at 5:30 pm on Monday, amid concerns about slowing economic growth, which at 5 percent is at its weakest in a decade, at a time of high inflation.

So far the rupee's defence has hinged on the RBI, which on July 15 unveiled steps to raise short-term interest rates and drain cash, with additional steps announced on July 23.

The RBI followed up again last Thursday announcing weekly sales of cash management bills to drain further cash.

Its first auction took place on Monday when it sold 110 billion rupees of 35-day cash management bills at a yield of 11.7056 percent. The RBI plans to sell an additional 110 billion rupees in 34-day bills on Tuesday.

But investors want India to tackle longer-term fiscal and economic reforms, such as raising fuel prices, and are yet to be convinced that the Central Bank's strategy is sustainable, raising the prospect of higher borrowing costs in the near term which could break growth even further.

The benchmark 10-year bond yield was up 8 basis points to 8.20 percent on Monday, and is up about 70 basis points since the RBI's first round of action on July 15.

The partially convertible rupee was trading at 61.05 on Monday compared to its close of 60.88/89 on Thursday.

Financial markets were closed on Friday for a holiday.

(Agencies)

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