While concerns are being flagged over depreciation of the rupee, Raghuram Rajan reiterated that it is not a worry.
Former RBI governor Raghuram Rajan has praised efforts by the Narendra Modi government to bring the fiscal deficit down while suggesting that emerging economies, headed for polls, should be getting it macro in order and keep the current account deficit under control. “Just to be fair, Indian authorities have brought down fiscal deficit… the country should be focusing on CAD,” Raghuram Rajan said in an interview to Bloomberg.
Recently, a finance ministry official told news agency PTI that the government will meet the fiscal deficit target for the current fiscal but is also expecting some slippage in the CAD on higher crude oil prices. Nomura has estimated that India’s CAD is expected to widen to 2.8% of the GDP this financial year.
The Narendra Modi government has brought down fiscal deficit from a high of 4.5% in FY14 to 3.5% in FY18 and aims to limit it to 3.2% in the current financial year.
While concerns are being flagged over depreciation of the rupee, Raghuram Rajan reiterated that it is not a worry. He pointed out that the rupee plunge is not yet at a worrying level, adding that the depreciation in rupee could be due to dollar strengthening and as for too long inflation in India has remained higher than the world.
The rupee is Asia’s worst performing currency and had breached 70 per dollar mark earlier this month. Like Raghuram Rajan, some analysts also suggest that the rupee may have been overvalued and needs to fall.
Sunil Sinha, Principal Economist, India Ratings and Research, recently said that overvalued rupee was hurting India’s exports. He noted that the realistic valuation of the rupee could inflict some pain in short-term but will be helpful in the long run.