‘MORE STEPS SOON TO EASE CAD, STABILISE RUPEE’
Finance minister Arun Jaitley on Saturday promised more steps to stabilise the rupee and narrow the current account deficit, assuring businesses that the government would be agile in its response to global trends shaping the economy, which, he said was underpinned by solid fundamentals.
NEW DELHI: Finance minister Arun Jaitley on Saturday promised more steps to stabilise the rupee and narrow the current account deficit (CAD), assuring businesses that the government would be agile in its response to global trends shaping the economy, which, he said was underpinned by solid fundamentals supporting annual growth of around 7.5% .
Addressing the 16th Hindustan Times Leadership Summit, the finance minister said the depreciation in the rupee and the high CAD were transient factors that had indeed affected India, but that these fell short of impacting capital flows of a long-term nature such as foreign direct investment (FDI).
The minister’s assurance of more policy measures comes in the wake of the domestic currency weakening beyond 74 on Friday against the dollar after the Reserve Bank of India decided to keep policy rates steady, belying expectations of a rate hike in some quarters. The rupee recovered some of the lost ground in the inter-bank foreign exchange market on Friday to close trading at 73.77, down 18 paise from its previous close.
Prices of crude oil — India’s biggest import -- have risen more than 10% since August, a factor likely to drive headline inflation. “The way oil prices have been going up, there has been some adverse impact on the CAD. We are trying to take measures to narrow it down. Some more steps are likely,” Jaitley said.
Experts warned the worst may not be over as far as rupee weakness is concerned. The US economy grew at 4.2% in the June quarter, its fastest pace in about four years, and the US Federal Reserve last month raised short term interest rates, its third increase so far this year, and signalled another raise in December — factors that contributes to dollar outflows.
“There are indications that the global trade growth is slowing down. There are some predictions of developed economies facing a recession by 2020. These indications suggest
India needs to be vigilant about external factors,” said NR Bhanumurthy, professor at the National Institute of Public Finance and Policy (NIPFP)
The government on September 26 raised the import duty on 19 non-essential items, which account for annual imports worth ₹86,000 crore, to arrest the widening CAD.
India’s current account deficit in the June quarter rose to a four-year high of 2.4% of gross domestic product, or $14.3 bn, which has put further pressure on the weakening rupee.
The minister said the fiscal woes India were transient and the fundamentals of the economy would support strong growth.
“The achievement of a consistent growth rate of 7.5 % plus or minus in today’s global situation is the highest. There are huge avenues of growth for India over the next 10-20 years, which is what investors are looking at. For example, the kind of investments taking place
in rural India is adding more to the size of India’s middle class,” the minister said.
India’s economy expanded at the fastest pace in nine quarters in the three months ended June, as strong domestic consumption and robust manufacturing growth overwhelmed any global trade-war worries.
Jaitley added that a growing middle class in India would help not just the country, but the global economy as well. Growing economic activity in the northeastern region as well as more women securing employment would also help in this growth of the middle class, he said.
The minister also said he was confident of meeting the fiscal deficit target of 3.3% of gross domestic product for the current fiscal year, citing strong direct tax collections.Gross direct tax collection in the first six months of the financial year grew 16.7% to ₹5.47 lakh crore, according to figures released this week.