Rupee impact on size of economy temporary, says Garg

The size of India's $ 2.6 trillion economy, the sixth largest in the world, may have reduced in dollar terms after the rupee depreciated but its impact will be temporary, Economic Affairs Secretary Subhash Chandra Garg said on Wednesday.

“The 10% depreciation in the rupee in the last few weeks may have reduced the size of the economy a bit in dollar terms but that is a temporary phenomenon. With such a high (economic) growth rate and inflation differential, the long-term path of rupee versus the dollar is quite stable,” Garg said in New Delhi at an industry event.

India recently surpassed France to become the world's sixth largest economy and has edged passed China with an economic growth of 8.2% in the April-June quarter.

But the rupee has depreciated close to 13% so far this year weighed down by global headwinds such as the rise in crude oil prices and the danger of a global trade war looming large. The depreciation of the rupee is likely to impact the country's interest rates, inflation scenario, its trade with other countries and overall gross domestic product.

Amid the fall in the Indian currency, the government is also planning to cut “non-essential” imports. The secretary said a decision on the cut down will be announced soon.

Crude oil, gold and electronics (machinery and equipment) are among India's top 10 import items. The government may go in for a reduction in import of high-end electronic items as crude oil import cannot be reduced until the country starts producing substantial amount domestically. India is a net buyer of crude oil and imports 80% of its total consumption.

Any duty hike on gold to discourage its import is also not feasible at the moment as it raises the risk of smuggling of the yellow metal. The World Gold Council has also warned against a further increase in duty on gold to support the rupee. Gold currently attracts a 10% import duty. Sources said duty on certain steel products may rise.