Use FE kitty to rein in rupee slide, says Panel

Use FE kitty to rein in rupee slide, says Panel

The Prime Minister’s Economic Advisory Council Chairman C Rangarajan pitched for utilisation of foreign exchange reserves to arrest the slide of rupee caused by temporary fluctuation in capital flows.

“If the assessment is that depreciation in rupee is being caused by temporary fluctuation of capital flows, reserves must be used in order to see that impact is not felt on Rupee,” Rangarajan said while addressing a PHD Chamber event here.

The Indian rupee has lost about 8 per cent since the beginning of March. It was trading around Rs 53.59 against dollar in early trade today.

Pointing out that the foreign exchange reserves were not dwindling at a fast rate, Rangarajan said, “one step should be to use the forex reserves in order to be able to prevent the rupee from falling sharply”.

The country’s foreign exchange reserves stood at around USD 290 billion. To check the sliding Rupee the Reserve Bank had last week asked exporters to convert half of their foreign exchange reserves into Rupee to make available dollars in the market.

Rangarajan said the depreciation in the value of Rupee was mainly due to a high current account deficit (CAD) which arises when import of goods and services exceeds its export. The CAD had touched 4 per cent of GDP at the end of December 2011.

“CAD is high and that has an impact on foreign exchange market and on rupee. We have to reckon with the fact that CAD will continue to remain at high level,” Rangarajan said, adding he expects it to be around 3 per cent in 2012-13.

During the 2011-12 fiscal, even as FDI inflows witnessed a rise, FIIs withdrew large sums from the Indian markets. The net investment by foreign institutional investors (FIIs) in stock market during 2011-12 was the lowest in the last three years at Rs 47,935 crore. The Foreign Direct Investment (FDI) into India in the last fiscal was around USD 36.50 billion (around Rs 1.82 lakh crore).

Rangarajan further said the GDP growth rate in the current fiscal would be over 7 per cent. In 2011-12 fiscal, the economy is estimated to have expanded by 6.9 per cent.

“The growth rate in the current year will be higher than last year. Agriculture will do well, monsoon is expected to be normal, services sector have also been doing well than last year. Manufacturing sector will do well than last year because of low base,” he said.

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