The Indian Rupee is trading at an all-time low against the Dollar and the Pound Sterling. What policy measures are required to stem this free fall? What are the dangers if this slide is not stopped? CRISIL's chief economist DK Joshi joined IBNLive readers for an interaction on the issue.
Q. What policy measures are required to stem the rupee fall? Asked by: Anuj
A. For a durable correction in the rupee we need to bring down the current account deficit by improving competitiveness of our exports. This will take time but steps towards this should be initiated. What ever the central bank and government have done so far fall in the realm of temporary measures and they have not been able to stabilise the rupee. Aggressive reforms, sorting out mining issues and clearance of some big tick investment projects can boost the sentiment and improve India's growth prospects. These can be a pull factor for capital inflows. If this happens rupee can strengthen from the current levels as cad/GDP will be lower this year. We expect it to be at 4.2 percent of GDP compared to 4.8 last year as gold imports will decline sharply.
Q. Sir, why is that we are always found on the losing side and except the RBI, govt is not able to arrest the the fall in the rupee. Asked by: anil
A. This is because our external vulnerability is very high- CAD is way above the prudent norm of about 2.5 per cent of GDP. IN such scenario global risk appetite and liquidity (which in turn depend on Federal reserve action) matter a lot for the currency. There is not too much you can do at this jucture except reversing the sentiment via reforms.
Q. Does the inflation have any impact on rupee movement? If so considering the high inflation in past few years, what could be the real value of rupee vs dollar. Asked by: lp
A. Inflation does impact the value of the rupee. With high domestic inflation vis a vis other economies rupee needs to weaken to maintain export competitiveness. At this juncture however the rupee has depreciated much more than required. Pls look at real effective exchange rate of the rupee.
Q. Hello sir, Isn't the vulnerability of Indian Rupee an outcome of our historically weak fundamentals of low exports and high CAD instead of recent low investments or FII running away which happens with every country during recession or election year? Asked by: Siddharth
A. To some extent yes. With high CAD India needs a large quantum of foreign savings which may not be forth coming.In addition our macros have weakened very sharply and slowdown in growth is largely homegrown. This have reduced our relative attractiveness, It is no surprise therefore that we are not able to attract enough foreign capital to fund our high CAD.
Q. We have been trying to cut down imports for very long without much success. Is the government doing enough to boost the exports to reduce CAD. Asked by: Abhi
A. Exports cannot be boosted in a short time. They critically depend on demand conditions in rest of the world and our competitiveness- Both have taken a beating off late. Some improvement in price competitiveness due to depreciation of the rupee is not enough to offset weak global demand particularly from Eurozone.
Q. Is the fall of Rupee against the dollar in anyway beneficial for a common businessman? Asked by: Zaed
A. It benefits some and others lose out. Those who depend on imported inputs for domestic sales lose out as their costs go up. Exporters who source domestic inputs stand to gain. If import costs become prohibitively high due to weak currency some import substitution can take place benefiting indian businesses.
Q. The gain by the Indian exporters due to fall is healthy for the country's economy? Asked by: sundar1950in
A. But many exports depend on imported inputs (which become expensive) and also with weakening currency the importers renegotiate prices thereby limiting the gains of indian exporters.
Q. Don't you feel it would be worse in the coming days if a stalemate occurs in the elections and a weak lame Govt comes to power? The only solution is strong measures notwithstanding the political fall out. But do you think this is possible? Asked by: AKS
A. Political outcome is an uncertainty. If we don't not get a like minded coalition and decision making is impaired, things could get worse for the economy. Let us keep the fingers crossed on this.
Q. We have been trying to cut down imports for very long without much success. Is the government doing enough to boost the exports to reduce CAD. Asked by: Abhi
A. Our imports are sticky in nature particularly crude oil, edible oil and coal- it is difficult to bring them down. Gold imports will come down this year due to a sharp fall in the price of gold and restrictions imposed by government.
Q. Joshi ji, With Indian neighbours like SL, Pak and Bangladesh having an even weaker currency, isn't it logical that Indian Rupee is moving towards that range only? I believe that it can not be completely independent of how competing country in region measure up? Asked by: S Chaturvedi
A. Only currencies of economies that run a high current account deficit have weakened. Some weakening of currency was due but such a sharp drop in the value of rupee is not desirable.
Q. Within Six years since 2007 rupee has fallen from 39.3 to its current level a drop of 34 percent. Where are we heading? Asked by: anil
A. The rupee will remain volatile on the near term. I do expect it to strengthen a bit from current levels, if government initiated some reforms.
Q. Tell me frankly do you see a solution to this Rupee fall with the present political situation and the current political dispensation which is weak and unstable living on borrowed time? How can we expect them to take tough decisions when they dint do so when things were brighter for them? Asked by: AKS
A. We have a firefighters approach to policy. In that sense things might get done as the situation is very bad at this juncture.
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