The stabilisation of the rupee around the 73-74 band against the US dollar may be a temporary phenomenon, as, according to economists, it’s due to the excise hike done by the government last month.
“The point is that the September current account deficit is the lowest because import growth has come down. But that is a temporary phenomenon, partially because they increase the excise duty and customs duty on quite a number of items,” said Govinda Rao, member of the 14th Finance Commission.
Rao also said despite the stabilisation, the rupee value will depend on the dollar liquidity.
The gap between exports and imports, or trade deficit, declined to $13.98 billion in September from $17.39 billion in August following slower growth in imports, which is a five-month low.
Exports were pegged at $27.95 billion during the month, down 2.15% from a year ago, while imports rose 10.45% to $41.9 billion.
The Centre, on September 27, imposed a 5% customs duty on aviation turbine fuel and hiked import duty on 18 other goods in a bid to cut “non-essential imports” that widened the country’s current account deficit (CAD) to a five-year high besides impacting the currency.
It said the Centre spent Rs 86,000 crore on the import of these items in 2017-18.
The Centre had last month decided to cut all “non-essential” imports and took steps to increase exports after an imbalance in trade impacted the rupee and widened CAD.
However, economists are predicting that rupee will slide further in the coming days. “In the medium to long-term, the rupee is bound to depreciate further, and it’s in our country’s interest that it finds a new equilibrium,” said Charan Singh, chief executive of Egrow Foundation, a Delhi-based think tank.
According to Singh, the inflationary gap between the US and India as well as interest rate differential will increase the demand for dollars.
The rupee seems to be stabilising despite the unabated outflow of foreign funds. The Foreign Institutional Investors (FIIs) and Foreign Portfolio Investors (FPIs) have withdrawn Rs 29,424 crore from the Indian debt and equity markets so far this year.