Rupee, fuel prices in focus as PM reviews economy
TAKING STOCK Modi to chair meeting with finance ministry officials, economists NEW DELHI:
Prime Minister Narendra Modi will chair a meeting to review the state of the nation’s economy on Saturday. Although government officials called it a routine review of economic developments, the meeting assumes significance in the current economic climate that is marked by a weakening rupee, high oil prices and a widening current account deficit.
Modi is keen to have a broadbased discussion at the meeting where independent economists have also been invited, said an official, who spoke on condition of anonymity. It suggests the government is keen to assess the situation comprehensively before taking a call on whether any policy intervention is required.
The weaker rupee and rising fuel costs have become a politically sensitive issue with the main opposition Congress party having led a Bharat Bandh on Monday. The rupee has depreciated more than 12% so far this year on a widening current account deficit (CAD) and higher oil prices. The domestic currency was trading at 71.65 against the US dollar at noon on Friday, compared to its Wednesday closing of 72.19.
Petrol and diesel prices on Friday touched new highs, a politically thorny issue for the National Democratic Alliance (NDA) ahead of assembly polls in Rajasthan, Chattisgarh and Madhya Pradesh due this year and national polls in 2019. Petrol went up by 28 paise a litre and diesel by 22 paise on Friday. Petrol now costs ₹81.28 a litre and diesel ₹73.30 a litre in the capital.
India’s CAD widened to a four-quarter high at 2.4% of gross domestic product (GDP) in the April-June period from 1.9% in the January-March quarter of 2017-18.
Finance minister Arun Jaitley said earlier this month that there was no need for a panic or a knee-jerk reaction to the sharp rupee depreciation which he said was driven by global factors. The upheaval will eventually settle down and the inherent strength of the economy will play an important role, the minister said.
In the meantime, easing food prices have helped offset the impact of rising fuel cost in retail inflation in August.
Inflation measured by the consumer price index (CPI) in August rose 3.69% from a year earlier and was down from July’s 4.17%, official data released showed on Wednesday. Retail inflation in August is at a 10-month low.
“My feeling is that the government is likely to take stock of the recent rupee depreciation, its implications as well as the policy options to deal with the high oil price. Policy makers are also likely to take stock of the implementation of flagship schemes as well as global developments,” said NR Bhanumurthy, professor at the National Institute of Public Finance and Policy (NIPFP).