Committing to preventing free fall of Indian rupee,Finance Minister P. Chidambaram today said that he would continue with fiscal consolidation and make efforts to contain Current Account Deficit (CAD) in a bid to strengthen the domestic currency.
“Given our fiscal deficit,given our Current Account Deficit,there will be some pressure on rupee and rupee will indeed depreciate. All that we are saying is that we cannot allow the rupee to go into a free fall. We are arguing for a stable rupee”,he said while replying to a discussion on the state of economy in the Rajya Sabha.
The Minister also made a strong case for promoting foreign investment to bridge the CAD,which had touched the historic high of 4.8 per cent of the GDP in 2012-13 and is responsible for declining rupee.
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On the issue of rise in prices of essential commodities,he said although the wholesale price-based inflation has come down to below five per cent in five months till June,efforts would have to be made to address the supply side problems to bring down the retail inflation.
However,controlling inflation cannot be the only mandate of the Reserve Bank of India (RBI),he said and advised the central bank to view it as “part of a larger mandate (of promoting) growth and employment.”
RBI under its present Governor D Subbarao had laid more emphasis on combating inflation and resisted pressure to ease monetary policy to promote growth.
Subbarao will be demitting office on completion of his term on September 4. Former IMF chief economist Raghuram Rajan will be the new Governor.
Stressing on the government’s commitment to check widening CAD,the Minister said,”we will leave no stone unturned to contain CAD at USD 70 billion (in current fiscal) and add to the foreign exchange reserves…As fiscal deficit is a red line,the CAD is also a line and every endeavour will be made not to breach that line.”
Listing the steps taken by the government to boost economy in face of global recession,Chidambaram said that UPA’s performance was much better than that of NDA.
He told the BJP that if comparison of the performance of NDA and UPA rules are made it “will only end with egg on your face”.
The Minister was responding to attack from BJP,which said the UPA had rendered the economy in a “critical” state because of lack of good governance and crony capitalism.
Responding to the controversy over poverty benchmark,Chidambaram said,”whatever line you take,the number of poor has come down by 140 million”.
Attributing rupee depreciation to external and domestic factors,Chidambaram said,”we are not arguing for or against a strong rupee…. We all want a stable currency. We also want a currency that has a high purchasing power,but we have to address the fundamental issues,that is fiscal deficit,CAD. These are being addressed.”
The rupee,he said,will strengthen with fiscal consolidation,lower CAD and increased flow of capital into the country.
On the correct level of rupee,the Minister said,”Nobody can predict what the correct level is…. Suppose our exports improve dramatically,suppose we are able to reduce our dependence on oil and coal which are imported,it will change overnight.”
The rupee touched all time low of 61.80 to a dollar earlier in the month. It closed at 61.43,down 24 paise to a dollar in today’s trade.