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There is no room to be fearful of the rupee taking a tanking again when the US Federal Reserve decides on tapering its stimulus programme as the Government has enough ammunition in its hands to deal with the situation, a top Finance Ministry official said today.
“I do believe when tapering happens then there will be outflow of capital but the fact also remains that we have enough ammunition in our hand...And therefore there is no room to be fearful of the rupee taking a tanking,” Department of Economic Affairs Secretary (DEA) Arvind Mayaram said at an event here.
Elaborating further, Mayaram said, “We have close to $270 billion of foreign reserves with the RBI, close to $40 billion of additional inflow of capital this fiscal year, a $50-billion swap arrangement with Japan.”
He also said a $100 billion contingency fund has been signed by BRICS countries.
The US Federal Reserve last week surprised the markets by saying it will continue with its monthly $85 billion bond buying programme and wait for more evidence of growth recovery before thinking of unwinding the stimulus.
Expectations that the stimulus programme would be tapered had led to fears of capital outflows causing the rupee to depreciate against the dollar and stocks to fall.
On the rupee, Mayaram said the intrinsic value of the rupee is between 58 and 60 against the dollar.
“There is something called the intrinsic value of the rupee. The intrinsic value of the rupee comes from its purchasing power. The intrinsic value of the rupee in Real Effective Exchange Rate (REER) terms could be somewhere between 58-60,” he said.
Mayaram expressed confidence that Foreign Direct Investment (FDI) inflows into India in the current fiscal would be around $36 billion.
“This year in the first quarter, the net FDI flow in the country has been $9 billion, which is 70 per cent higher than FDI inflow in the first quarter of the last fiscal. If that trend continues, then I have no doubt, FDI inflows in the country will be $36 billion,” he said.
The Department of Economic Affairs Secretary also said the Government would be able to save around $1 billion as bulk diesel demand falls.
On growth, he said, “We are not satisfied with a 5 per cent growth rate. India’s potential rate of growth is 8 per cent. In the next two years India will again start growing at 8 per cent.”
Economic growth in India in the April-June quarter of this fiscal slipped to 4.4 per cent, the slowest pace in at least four years.
India’s economic growth had fallen to a decade’s low of 5 per cent in the 2012-13 fiscal year.
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