New Delhi: As the rupee fell below the 68-mark and global agencies painted a gloomy outlook for the economy, the government Wednesday sought to reassure investors by saying there was no need for panic as the decline in the domestic currency was a reflection of "irrational sentiment."
"There is no need to panic. The Indian economy is strong and we will turn it around," Commerce and Industry Minister Anand Sharma said.
While the rupee fell 256 paise to close at a record low of 68.80 to a dollar, Standard & Poor's cautioned that the road ahead for countries with large deficits, including India, is "rocky in the near term."
The rupee dropped today as oil prices rose in Asian trade on concerns over possible military action against Syria, adding to concerns about the current account deficit and capital outflows.
Trying to assuage investors, Economic Affairs Secretary Arvind Mayaram said: "This is an irrational sentiment. It will correct itself. It is important to stay on the course. There is no need to panic."
The rupee has plummeted over 20 percent since April. The mayhem in the currency market was extended to equities, with the S&P BSE Sensex declining 9 percent in the past month.
As dark clouds loomed over the economy, French financial services major BNP Paribas lowered its growth forecast for India to 3.7 percent from 5.2 percent earlier, saying the situation was fast approaching a crisis proportion.
Reflecting the uncertainty in the economy, gold prices jumped by a record Rs 2,500 to Rs 34,500 per 10 grams.
A worried Finance Minister P Chidambaram on Tuesday had said the rupee is undervalued and came out with a 10-point action plan to revive the economy, which included promoting exports, encouraging manufacturing and reducing the fiscal deficit and CAD.
Singapore-based DBS Bank said: "The string of recent policy action might only help to manage the pace of depreciation and limit volatility rather than reverse the course of the currency.
"The effort to effectively defend the currency is turning into a losing battle in this environment."
Seeking to reassure investors, Mayaram said the current account deficit in 2013-14 will be much lower than expected.
"CAD will be much lower than expected. We have already seen some moderation in CAD," he said.
CAD, which is the difference between the inflow and outflow of foreign exchange, hit a record high of USD 88.2 billion in 2012-13. The government expects to bring it down to USD 70 billion in the current fiscal.
Mayaram further said the government does not plan to ban derivatives trading in the currency market, a move that experts feel could help in curbing speculation.
The declining rupee may make cars, TVs, washing machines and other home appliances more expensive, with companies set to hike prices to offset the impact on their margins.
India Inc said the government must take urgent measures such as issuing sovereign guaranteed bonds and exempting FIIs from short-term capital gains tax to stem the rupee's slide.
India's economic growth slipped to a decade's low of 5 percent during 2012-13. The growth rate in the fourth quarter ended March 31 stood at 4.8 percent compared with 4.7 percent in the third quarter of 2012-13.
The government expects growth to recover in the current fiscal. The growth estimate for the first quarter is scheduled for release on August 30.