I dont believe that either the government or the RBI have taken a view that we are drawing a red line on which rupee should be. At the moment, in my view, the rupee is over depreciated, Ahluwalia told Karan Thapar in an interview on tv channel CNN-IBNs show Devils Advocate.
Last week, the rupee touched an all time low of 65.56 against the dollar on Thursday but recovered to 63.20 on Friday on finance minister P Chidambarams pep talk and suspected intervention by the Reserve Bank.
The rupee has depreciated over 17% against the dollar since April-end this year.
According to Ahluwalia, the steps taken by the RBI, including control of capital transfers, were misinterpreted by the markets. Earlier, RBI governor-designate Raghuram Rajan and economic affairs secretary Arvind Mayaram had ruled out bringing back capital controls.
Ahluwalia said serious investors look at what authorities say when markets are troubled.
On the possibility of India going to IMF for funds, Ahluwalia said: (It is) absolutely ridiculous suggestion. The scale of facility you would need to get from IMF is very small compared to the (foreign exchange) reserves you have.
Ahluwalia advocated the use of foreign exchange reserves as a measure to limit the current account deficit (CAD). The government aims to cut it down to $70 billion, or 3.7% of the gross domestic product this fiscal.
Now in my view, there is no point whatsoever having foreign exchange reserve if you are not going to use them when necessary, he said.
According to him, the CAD would be lower this fiscal than it was in 2012-13 ($88.2 billion, or 4.8% of the GDP), on account of reduced gold imports and there would be a slack in demand of petroleum products due to sluggish economic growth.
On the efforts made by the Cabinet Committee on Investment set up to deal with held up projects, he said the power projects having generating capacity of 78,000 MW would have fuel supply arrangements in place by the end of this month.