Madam
Speaker, the movement of the exchange rate of the Indian
Rupee recently has been a matter of concern. The Rupee has fallen sharply
against the dollar since the last week of May. There are concerns of the
impact this would have on our economy. Madam, what triggered the sudden depreciation
was the markets’ reaction to certain external developments. On 22nd
May, 2013, the United States Federal Reserve indicated that it would
soon taper its Quantitative Easing as the US economy was recovering.
This led to a reversal of capital flows to Emerging Economies, which are
now100 pulling down not
just the Rupee but also many other currencies. While global factors such as
tensions over Syria and120 the
prospect of the US Federal Reserve tapering its policy of Quantitative Easing
have caused general weaknesses in the Emerging Market currencies, the Rupee has
been especially hit because of our large Current Account Deficit and some
other domestic factors. We intend to act to reduce the Current
Account Deficit and bring about an improvement in the functioning of our
economy. In 2010-11 and the years prior to it, our Current Account Deficit
was more modest and200
financing it was not difficult, even in the crisis year of 2008-09. Since then,
there has been a deterioration, mainly on account of huge
imports of gold, higher costs of crude oil imports and coal. On the240 export side, weak demand in major
markets has kept our exports from growing. These factors have increased our Current
Account Deficit. Clearly, Madam, we need to reduce our appetite for
gold, economise in the use of petroleum products and take steps to
increase our exports. We have taken measures to reduce the
Current Account Deficit. The Finance Minister has indicated300 that it will be below $ 70
billion this year, and we will take all possible steps to ensure that
outcome. These are already showing results with a declining trade deficit in
both June and July. The Government is confident that we will be able to
lower our Current Account Deficit to $70 billion. Our medium-term
objective is to reduce360
the Current Account Deficit to 2.5 per cent of our GDP. Our short-term
objective is to finance the current account deficit in an orderly
fashion. We will make every effort to maintain a macro economic framework
to enable orderly financing400
of the Current Account Deficit.
Madam
Speaker, coming back to the effects of the Rupee depreciation, we must
realise that part of this depreciation was merely a needed adjustment.
Inflation in India has been much higher than in the advanced countries.
Therefore, it is natural that there has to be a correction in the
exchange rate to account for this difference. To some extent,
depreciation can be good for the economy as this will help to increase
our exports and480 discourage
imports. There are many sectors which are regaining competitiveness in export
markets as a result of the fall in500
the exchange rate. Over the next few months, I expect the effects
of this to be felt more strongly, both in exports and in the financial position
of exporting sectors. This in itself would correct the Current Account
Deficit to some extent. However, foreign exchange markets have a
notorious history of overshooting. Unfortunately, this is what is
happening not only in relation to the Rupee but also other currencies.
The Reserve Bank and the Government have taken a number of steps to stabilize
the Rupee. Some measures have given rise to doubts in some quarters that
capital controls are on600 the
horizon. I would like to assure the House and the world at large that
the Government is not contemplating any such measures. The last two
decades have seen India grow as an open economy and we have benefited
from it. There is no question of reversing these policies just
because there is some turbulence in capital and currency markets.
The sudden decline in the exchange rate is certainly a shock, but we will
address this through other measures, not through capital controls or by
reversing the process of reforms. The Finance Minister has clarified this
matter at length, and700
I take this opportunity to reaffirm our position.
Madam
Speaker, Ultimately, the value of the Rupee is determined by the720 fundamentals of our economy. While we
have taken a number of actions to strengthen those fundamentals, we intend
to do more. Growth has slowed in recent months. I expect growth in the
first quarter of 2013-14 to be relatively flat, but as the effects of the good
monsoon kick in, I expect it to pick up. There are many reasons for this optimism.
The decisions of the Cabinet Committee on Investment in restarting stalled
projects will start800 bearing
fruit in the second half of the year. The full effects of the growth-friendly
measures that have been taken over the last six months, such as
liberalizing norms for Foreign Direct Investment, resolution of some tax
issues of840 concern to
industry and fuel subsidy reform will come into play over the year,
resulting in higher growth particularly in manufacturing. Exports are also
starting to look up as the growth performance of the rest of the world
is showing signs of improving. So, I believe growth will pick up in the
second half of the fiscal year barring extreme900 unforeseen eventualities. Madam, there
are questions about the size of the fiscal deficit. The Government will
do whatever is necessary to contain the fiscal deficit to 4.8 per cent of GDP
this year. The most growth-friendly way to contain the deficit is to
spend carefully, especially on subsidies that do not reach the poor, and we
will take960 effective
steps to that end. Madam, inflation measured by the Wholesale Price Index
has been coming down, even though inflation measured by the Consumer Price
Index is still too high. Depreciation of the Rupee and rise in Dollar
prices of1000 petroleum
products will no doubt lead to some further upward pressure on prices. The
Reserve Bank will therefore continue to focus on bringing down inflation. The favourable
monsoon and the anticipated good harvest will help bring down food
prices and ease the task of controlling inflation. All in all, the macro-stabilization
process, which should support the value of the Rupee, is under way. I expect
that as the fruits of our efforts materialize, currency markets will recover.
Madam Speaker, even1080 while
we go about doing what is necessary, it is important to recognize
that the fundamentals of the Indian economy1100
continue to be strong.
