Rupee tumbles past 66 mark, FM says it is undervalued
New Delhi: With rupee breaching 66 mark, Finance Minister P Chidambaram on Tuesday said the currency is undervalued and the government will endeavour to improve investor sentiment to help it find its appropriate level.
"At the moment we believe that the value of the rupee has overshot its true value...I am confident that the rupee will find its true (and) appropriate level", he told the Rajya Sabha during Question Hour.
The rupee has been consistently hitting record lows and breached 66 to a dollar in the intra-day today.
"We have to be patient. We have to be firm. We have to be clear headed... Only do the things we have to do in order to strengthen the fundamentals of the economy. I cannot say that the rupee will appreciate or depreciate in a given period", Chidambaram said.
The rupee, the Minister told reporters earlier in the day, "is undervalued...Every emerging market is challenged today. India is also challenged and the impact is also felt on the equity market as well as on the currency market."
The BSE sensex, the equity market barometer, declined by 3.3 percent or 620 points during the intra-day trade.
"There are not just external factors, there are also domestic factors. We recognise that there are domestic factors. One of the domestic factors is that we allowed the fiscal deficit to be breached and we allowed current account deficit to swell because of certain decisions that we took during the period 2009 to 2011," he added.
Chidambaram attributed the present economic woes to the stimulus that the government provided to the industry to tide over the global financial meltdown of 2008.
"It (fiscal stimulus) brought us growth, it stabilised the economy, we swayed off the very serious consequences of the 2008 collapse of the US economy. But it cost us in terms of fiscal deficit and current account deficit," he said.
The government, the Minister said, had taken steps to check fiscal deficit and the country was now on path of fiscal consolidation.
The exchange rate, he pointed out, was remarkably stable between August 2012 and May 2013 but rupee has come under pressure since May 22.
"All the currencies of all the emerging economies have come under pressure. For the moment we believe that the value of the rupee has overshot its true value," he said, refusing to speculate on the way rupee will move in near future.
Referring to Cabinet Committee on Investment (CCI) according approval to 27 projects envisaging an investment of Rs 1.83 lakh crore, he said, "once the investment cycle picks up, manufacturing picks up, I am sure it will have positive impact on the economy and in particular the current account deficit".
On challenges facing the economy, he said, inflation, sluggish export growth in first three months and gold imports posed a challenge.
Chidambaram said the fiscal deficit would be contained at 4.8 percent of the GDP even after doling out subsidies for the implementation of the Food Security Bill.
"(Fiscal deficit of) 4.8 percent of GDP and the absolute number indicated in the Budget is a red line and the red line will not be breached ... We have provided enough money for the cost of the food security programme for the remainder of the current fiscal.
"As the roll out takes place in the states, money will be provided. We think that after providing for the Food Bill we will still remain in the limit we have set for ourselves in the Budget papers," he said.
The total food subsidy budgeted in the current fiscal is Rs 90,000 crore, of which Rs 10,000 crore is towards implementation of the Food Security Bill.
The bill will guarantee entitlement of 5 kg foodgrains per month at highly subsidised prices of Rs 3, Rs 2, Rs 1 per kg. for rice, wheat and coarse grains respectively.
The bill will guarantee 5 kg of rice, wheat and coarse cereals per month per person at a fixed price of Rs 3, 2, 1, per kilo, respectively.
Noting that high inflation and current account deficit was a cause of concern for investors, Chidambaram said the government has the conviction to contain fiscal deficit but needs to communicate its policies on CAD and inflation more effectively.
"Once the investment cycle picks up; manufacturing picks up; I am sure that will have positive impact on the economy and upon the CAD", he said, stressing the government would make efforts to contain CAD below USD 70 billion or 3.7 percent of the GDP in current fiscal. It was USD 88.2 billion or 4.8 percent of the GDP in 2012-13.
Admitting the export growth was very sluggish in the first three months, Chidambaram said, promoting shipments was a challenge and hoped it would show some improvement in the later part of the year.
Referring to surge in gold import, Chidambaram said, "it was a challenge in April and May (and) to some extent it has been contained. These challenges will be there. But we must have courage, patience and the clear-headedness to meet every challenge as we face it".
As regards the role of the RBI, Chidambaram said, the larger goal of the central bank should be to promote growth and maximise employment opportunities.
"While I entirely endorse central bank's primary goal must be price stability...How do we define price stability... must be done in context of growth and employment", he added.