Making a clear reference to the role of currency speculators in the sharp downward movement of the rupee,Chief Economic Advisor to the Finance Ministry Kaushik Basu today made a case for the Reserve Bank of India (RBI) to step in to curb speculative activity in a volatile foreign exchange market.
Rupee volatility is a big concern for the government and we are watching it closely… Trouble with rupee-volatility is also because of speculative investors, Basu said today during the launch of the Economic and Social Survey of Asia and The Pacific,2012 a report on the economic growth projections for the region by the United Nations.
Reserve Bank of India intervenes when there is a sudden fluctuation… Some are natural processes,but there are speculative moves that players make on this and they have to be watched very carefully by RBI, he added.
Explaining the reason behind rupee depreciation,Basu said that over the last two years,the rupee has been inflating at 10 per cent while dollar has been inflating at 2 per cent,which means the rupee has been losing value against dollar in the last few years. Certain amount of depreciation of the nominal exchange rate is purely a reflection of the differences in the inflation that have occurred over the last few years, he said.
He said that Indian economy is likely to grow at 7.6 per cent during the financial year 2012-13,with growth slated to pick up towards the end of the year. Some tax cuts in the US should end,which will push some money out of US and a part of that will flow to India, he said.
We are predicting slow recovery, counting the slowdown in reforms as one of the major reasons for the economy losing steam. Talking about the euro zone crisis and the upcoming repayment of an estimated 1.3 trillion euros by 800-odd European banks between December,2014 and February 2015,he said a third downturn in growth is expected in 2014,coming in the wake of the two previous dips in 2008 and 2011. The market is beginning to anticipate that there is a big bunching up of repayments. Three years down the line there is a risk of another dip.
Asked about the rising global commodity prices,he said if global commodity prices are higher,you cannot shelter the risk completely. If you try to do it,it will get built-in your deficit. A part of the rise has to be borne by the people.
Terming the Vodafone tax case as a non-issue,he said that Vodafone will not have any negative impact on the foreign inflows. I have been discussing the issue with many foreign institutional investors and they do not think that it will impact the investor sentiment negatively.