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Amid concerns over the declining rupee, Finance Minister P. Chidambaram said the currency will find its level as steps being taken by the Government to contain the fiscal and current account deficits will improve investor sentiment.
“We are committed to contain the fiscal deficit within the target and we are addressing how to finance the current account deficit. Sentiment will turn in favour of the rupee. I think the rupee will find its level,” he said.
The rupee had touched historic low of 60.76 against the dollar on June 26 due to heavy capital outflows amid fears of early withdrawal of the US monetary stimulus.
The Finance Minister, however added there is ‘no good and bad value’ that one could attach to the price of the rupee.
“It’s a price. Rupee is bought and sold. Dollars are bought and sold. There is a price. It’s also a function of supply and demand. It’s also influenced by sentiment,” he said.
Unfortunately, Chidambaram said, it is not only the sentiment of Indian buyers and sellers that matters in the forex market.
“Even the sentiment of a lone gentleman (US Federal Reserve Chairman Ben Bernanke) in the US impacts the rupee. And I have said Mr Bernanke’s statement is misunderstood or misinterpreted,” he said.
CAD CHALLENGE
Chidambaram also pointed out that high CAD, fiscal deficit and inflation have a depreciating impact on the rupee.
India’s CAD touched a record high of 4.8 per cent of the GDP in fiscal 2012-13 due to high imports, including that of gold. High CAD puts pressure on the value of the rupee.
Financing the current account deficit year after year is a challenge and the only way to deal with the problem is by increasing exports.
Chidambaram, who met Commerce Minister Anand Sharma earlier in the day, said: “We have reviewed the (export) figure this morning. First quarter figures are not encouraging.”
“I am sure some measures will be taken to reverse this trend (declining exports) and our exports will be back on a moderate growth path so that trade balance does not expand,” he said.
Chidambaram said the Government had financed the CAD through foreign inflows last year and also added about $3.8 billion to the foreign exchange reserves.
The Government has been taking steps to encourage overseas investment and is in the process of relaxing FDI caps in various sectors.
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