New Delhi, Sept. 27: The government will try to stabilise the rupee and, if possible, allow it to appreciate to provide a cushion against mounting subsidies.
“The Prime Minister underlined the need for a number of measures that will ensure that there is no volatility in the rupee,” finance minister P. Chidambaram said after a meeting of the UPA co-ordination committee.
For every rupee fall in the value of the dollar, India saves Rs 8,000 crore in subsidies. When the value of the dollar fell against the rupee from Rs 55 to Rs 53 in the past fortnight, India shaved Rs 16,000 crore off its subsidy bill. The reverse happens when the rupee depreciates.
“The PM’s advice to stabilise the rupee has been in that context,” said finance ministry officials.
A stable rupee would speed up the Centre’s resource mobilisation drive by cutting subsidies, selling stakes in public sector units and easing foreign direct investment (FDI) norms.
The government has already cut diesel subsidy and is likely to stick to its decision in the face of a massive Opposition onslaught that culminated in an all_india bandh on September 20. However, it may raise the quota of cheap cooking gas — six per household — to mollify allies and win popular support.
FDI has already been allowed in multi-brand retail, while moves are afoot to hike the foreign investment cap in insurance and allow overseas investors to pick up stakes in pension funds here.
Chidambaram is also believed to have asked North Block officials, who are holding meetings with the RBI, to plan out government borrowing and keep it to the budgeted limit.
The government has decided it will stick to its earlier plans of borrowing Rs 2 lakh crore through bonds in the second half of the current fiscal.
Analysts had expected the government to announce a further long-term borrowing of Rs 50,000 crore; this seems to have been junked.
However, North Block officials feel keeping the deficit at 5.1 per cent of the gross domestic product (GDP) will be a tough task given the huge increase in oil prices and the consequent increase in subsidies. They said the deficit could increase to 5.2-5.3 per cent of GDP and that “this would be doable”.