The Telegraph
Since 1st March, 1999
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Rupee stabilisers in the works

New Delhi, Oct. 23: Concerned over the surge in the rupee’s value, the BJP-led central government is planning to take steps to stabilise the currency.

Acting under pressure from the exporters’ lobby, the government wants to halt the rise that has seen the rupee harden from a level of Rs 48.50 a year ago to just over Rs 45 to the dollar.

Finance minister Jaswant Singh, who met RBI governor Y. V. Reddy here today, is believed to have discussed the rupee appreciation and the necessary remedies to the situation.

Although in theory, the exchange rate of the rupee is market determined, in truth, it is propped up or allowed to fall in a calibrated manner by the Reserve Bank in consonance with government policy.

Top finance ministry officials said the rupee rise will be checked through gradual doses of intervention by state-run banks and the central bank but no official statements would be made on this issue.

“If it is not contained or graduated by interventions, then we could see the rupee appreciating to a figure of 42 to a dollar,” officials said. “The only saving grace is that many of our exporters are now quoting in euros as the European Union has become our single biggest market ... this has acted as a cushion for us otherwise our export earnings would have fallen even more,” they said.

Commerce minister Arun Jaitley has lobbied on behalf of exporters and has also been pressurising the finance ministry to try and stabilise the rupee.

Latest trade data shows that in rupee terms, export growth was only 4.1 per cent during April-August. During the month of August, the export growth rate fell to a negative 1.5 per cent decline compared with the same month of the previous year.

A joint group formed of top representatives from the finance and commerce ministries, Reserve Bank and Planning Commission had actually decided a year back on a deliberate policy to depreciate the value of the rupee by 5-7 per cent every year over the next five years. The decision had been taken keeping in view the dismal export performance of the country.

Officials said since exports have a central role to play in the attainment of growth and tax collection targets, there was a policy decision that the “exchange rate be viewed primarily as an instrument to affect the behaviour of exports at least until such time as the production base of the economy is sufficiently integrated with the global market and exports robust enough to withstand periodic fluctuations in the exchange rate and in international prices.”

In fact because of the rise of the value of the rupee, the government has had to pick up a larger export subsidy tab of over Rs 16,120 crore in the first six months of this fiscal.

“By stabilising the rupee, we will help prop up exports and stop the rise in export subsidies which is burning a hole in our pockets,” said officials.

One of the underlying but unstated reasons why the government is keen that exports are propped up by calibrating the rupee (besides the need to boost growth and tax collections), is that the WTO regime will force India to allow the entry of more foreign goods over the next five years and the government would like the domestic industry to turn price competitive with global products during this phase itself so as to be able to continue to exist.

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