PC allays fears on massive Re fall

Notwithstanding continuous fall in the rupee and withdrawal of investors from Indian equity and bond markets, the government on Thursday put on a brave face saying there was no need for “excessive and unwarranted pessimism.”

 “We are confident that stability will return to these markets and we can get on with the task of promoting investment and growth,” Finance Minister P Chidambaram told reporters breaking his silence over the precipitous fall in the Indian currency over the past six days. He said there was no cause for panic that had gripped markets.

The minister also hoped that growth in India’s economy would pick up from the second quarter beginning July. The first quarter (April-June) official economic growth numbers are expected on August 30.

 “Growth slowed down to 5 per cent in 2012-13 and we expect that the growth trend will remain flattish in the first quarter, but even so, we are in better health than many other countries in the world,” Chidambaram said.

He added that growth would pick up from second quarter to the rest of the fiscal.
 Concerns over slow growth in the economy and slow reforms have forced investors to stay away from India. A persistently high level of inflation, too, has eroded the value of currency over a period of time.

 India’s currency has tumbled 17 per cent since May when the first noises of tapering off quantitative easing were heard and analysts say the currency may touch 70 to a dollar level in no time if the government does not take measures to correct trade and current account imbalances. On Thursday, it plunged to 65.56 to a dollar before recovering to settle at 64.55.

 In its annual report, the RBI expressed concerns about heightened inflation and elevated oil subsidy payout this fiscal on account of a massive fall in the rupee.

Headline wholesale price index inflation climbed to 5.79 per cent in July driven primarily by higher food prices and costlier imports as the rupee's fall continued. Consumer price index inflation was 9.64 per cent in July, fuelled by high food prices.

 The risk on the inflation front are still significant, the RBI said. If  high food inflation persisted into the second half of 2013-14, the risks of generalised inflation could become large.

The government, however, pinned growth hopes on good monsoon and an increase in sown area by about 9.1 per cent. Chidambaram also said that an acceleration in planned expenditure this year will see economic growth back on the track.

The government had cut down plan expenditure significantly last fiscal, which analysts say, has had an adverse impact on growth this year.

“There was—and is—no intention to introduce any type of capital control, including controls on repatriations. It is not the policy of the government or the RBI to resort to capital control or reverse the direction of capital account of liberalisation. The measures that were taken last week will be revisited as stability returns,” he said.