'Re depreciation can be good for economy; will help increase export competitiveness'.
Prime Minister Manmohan Singh described the depreciation of rupee as “a needed adjustment” for the economy. “To some extent, depreciation can be good for the economy as this will help to increase our export competitiveness and discourage imports,” he said in his statement to Parliament on Friday.
“This, in itself, would correct the current account deficit to some extent,” Singh said — the first acknowledgement by the government that a defence of the rupee from its slide is uncalled for.
His comments cooled the rupee which gained 85 paise in the day to close at 65.70 against the US dollar. Friday’s statement was Singh’s first detailed statement on the current economic situation discussing the falling rupee, its effect on growth and the hefty current account and fiscal deficits.
Singh gave an assurance that the government would not revert to capital controls while seeking political consensus to go ahead with “difficult reforms” such as roll out of the goods and services tax and further opening up of the insurance and pension sectors.
“The easy reforms of the past have been done. We have the more difficult reforms to do, such as reduction of subsidies, insurance and pension sector reforms, eliminating bureaucratic red-tape and implementing GST. These are not low-hanging fruits and they need active political consensus,” the Prime Minister said.
These measures, he said would help improve the fundamentals of the economy, and also address the sudden decline in the rupee value that has depreciated by 25 per cent since April this year.
Singh attributed the sudden and sharp depreciation in rupee to various domestic problems including high inflation, high CAD and to global factors like US Federal Reserve’s plans to taper quantitative easing measures and tensions in Syria. “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,” he said.
Blaming high gold imports and hardening crude oil and coal prices for the CAD, he said that the government’s ultimate goal is to bring it