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New Delhi: According to a survey of 35 economic analysts from across Industry, by the Confederation of Indian Industry, the Indian rupee is not expected to fall further in the immediate future. However, the current exchange rate of Rs 53-55 vis-à-vis the US dollar is the new normal, said the survey.
Sixty per cent of economists surveyed believe that the rupee will remain at current levels of Rs 53-55 and that this level represents the medium-term trend. Forty per cent said that the exchange rate could continue to slide. A majority of respondents felt that the situation would remain volatile till the end of the second quarter of this fiscal year.
Divergent views were expressed regarding expected rupee range in December 2012, with 40% expecting it to be at Rs 50-52, 30% at Rs 55-58, and 20% at Rs 53-55.
Commenting on the subject, Mr Chandrajit Banerjee, Director General, CII said “The Indian rupee has declined more than the troubled Euro and GBP currencies, dropping as much as 25.58% between June 30, 2011 and June 30, 2012. It fell by 9.11% during April 1 to 29 June this fiscal year. This impacts economic confidence, builds up inflationary pressures, and hits industry through rising import costs. The high volatility in the Rupee has added to the complexity of business in the country. The government and the RBI need to tackle the underlying macroeconomic problems that lie at the root of the fall in the rupee in order to provide some stability in business conditions
Ranking reasons for decline in the rupee, the main factors pointed out by respondents were high current account deficit, policy inaction and high fiscal deficit.
Underlying macroeconomic problems lie at the root of the fall in the rupee, according to the respondents to the CII survey. Solutions will need to be evolved by the Government and the RBI to address these fundamentals for the longer term rather than taking only short-term steps. Some of the suggestions put forward were to review FDI policy in critical sectors, pay oil companies directly from reserves, issuance of dollar-denominated bonds, and further increase in FII limits in the Indian debt market.
Improving capital flows with consistent and transparent policies is urgently required, said the CII survey. FDI in multibrand retail and aviation would go a long way to improve investor confidence. Taxation structures for FIIs, including reducing withholding tax on foreign investment, must be made clear and transparent.
Deregulation of oil prices would reduce both fiscal deficit and current account deficit. A cap on gold imports may also help in reducing dollar demand.
Other macro measures recommended were reducing fiscal deficit, pruning subsidy expenditures, and moving forward on reforms such as GST and passing pending legislation.
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