Strong actions needed to make rupee stronger, says Assocham

Internal demand generation and making an all-out effort to motivate Indian expatriates to increase their remittances to India are immediate solutions to the fast depreciating rupee under the impact of capital outflows  from the stock market, says the findings of a quick Assocham poll among the bankers and economists.

The rupee has touched an all-time low of moving closer to Rs 54 per dollar and the pressure on the Indian currency increases each time there is a percentage point drop in BSE Sensex. The outflows by foreign institutional investors (FIIs) are not the result of only the so-called policy paralysis, but mostly because of risk aversion by the global investors into the equity markets.  
This was the view of majority of India’s 50 well-known economists and bankers, polled in the Assocham survey in the second week of May.    "....once the internal demand is generated, the FIIs would return to the Indian markets which will soon have attractive valuations again,” says Assocham President Rajkumar Dhoot.
The situation is being worsened by weak global demand for goods and resultant impact on the services industry. There is an all-round pessimism among goods exporters and services exporters, mainly the IT majors, have given not- so-encouraging guidance for the financial year 2012-13. It is the US which is the market for Indian IT services and the signals are rather unclear as the American economy has shown slow signs of recovery. 
Uncertain global scene
On top of it, Dhoot points out, climate in the US during elections will increase heat on the protectionism, hurting the Indian outsourcing industry which is targeting a revenue of $100 billion. 
The situation in the eurozone is alarming. In this area, merchandise exports would get more affected than the services. In any case, both have impact on India’s current account deficit, which is moving dangerously on the higher side, in excess of 4 per cent of the country’s Gross Domestic Product reveals Assocham survey. “Unfortunately, there are no immediate solutions to these problems, but the country needs answers in the short-term. We cannot afford the confidence to further decline,” said Assocham. 
Encourage capex
He also urged the that remittances from the non-resident Indians (NRIs) have to be mobilised much more. While a handful of banks have increased interest rates on the NRI deposits, these efforts need to be intensified. 
The second solution offered by experts participating in the poll was immediate efforts to revive the internal demand. While moderating interest rates will send a strong signal and boost consumer confidence, improving investment climate should be done without loss of time, they said.
New investment proposals, both in the public and private sector, dropped by 45 per cent between 2010-11 and 2011-12. This is something the country can ill-afford, if it wants to retain the growth momentum of 7-8 per cent, they added