Weak rupee indication of falling competitiveness: Uday Kotak
Mumbai: Terming rupee depreciation as a sign of falling competitiveness of the domestic economy, Vice-Chairman and Managing Director of Kotak Mahindra Bank, Uday Kotak Wednesday said efforts should be made to increase productivity rather than only relying on short-term measures.
He said the rupee movement in short term will depend upon the announcement to be made tonight by Federal Reserve Chairman Ben Bernanke regarding the future of the third round of the quantitative easing (QE3).
"Over last five years, the currency has depreciated by 45 per cent. It shows that there is a lack of competitiveness and the currency is adjusting to this lack of competitiveness. I think, up to a point, the currency will take care of this...," Kotak said addressing an event organised by Indian Merchants' Chamber (IMC) here.
He further said that in the long-term, the country has to find sustainable solution to current account deficit (CAD) by increasing productivity and competitiveness than only focusing on how to bridge the deficit.
Referring to short-term trajectory of the domestic currency, Kotak said it would depend on the scheduled announcement late tonight by Federal Reserve Chairman, Ben Bernanke on economic stimulus given to the US economy.
Domestic currency has lost over 7 per cent since the first week of May on the back of pulling out of foreign flows, which was around USD 3.9 billion from the debt market, on apprehensions regarding tapering of the US stimulus programme.
On the government's proposal to raise foreign direct investment (FDI) limit in various sectors as a measure to increase foreign fund inflows, Kotak said that it would only acts as a short-term measure.
He, however, said that recent rupee depreciation would be helpful for domestic producers with making their produce competitive in the global market.
Kotak also pointed out the significant rise in cash economy after the liberalisation compared to the preceding period, saying that opening up of economy has not brought in more transparency in the system.
Kotak invoked epic Mahabharata to draw parallels between the predicaments of its character Arjun and Prime Minister Manmohan Singh.
"Just like Arjun, who, having won the war against the Kauravas, lost a battle to a tribal while passing through a jungle, it is quite ironic that we have the father of our liberalisation Dr Manmohan Singh, who started the reform process 22 years ago, and the challenges we are facing 22 years later".
Kotak hoped that the the country's polity will give the mandate for a strong and stable government post 2014 which will have decisive governance.