FM: Rupee undervalued, but no need for ‘unwarranted pessimism’

Assures that stability will return to currency markets as govt will continue to promote investment, growth

New Delhi (PTI): Reacting to the falling rupee in the last five trading, the Finance Minister P Chidambaram sought to assuage the investors asserting that there is no need for ‘excessive and unwarranted pessimism’. He felt that the currency is undervalued and has overshot appropriate levels.

After maintaining silence for a week, Chidambaram met media on Thursday, a day when the rupee breached 65-mark against dollar, to assert that there was no cause for panic. He further assured that stability will return to currency markets as government continues to promote investment and growth. "We believe that rupee is undervalued and has overshot what is generally believed to be a reasonable and appropriate level," he said.

Early in the day, the Finance Minister held three-hour long discussion with RBI Governor D Subbarao and his successor Raghuram Rajan. Chidambaram said, "We are confident that stability will return to these markets and we can get on with the task of promoting investment and growth." The Finance Minister said the recent steps taken by the Reserve Bank to reduce volatility in forex market and quell speculation would be revisited.

Subbarao in a separate media briefing said India has adequate forex reserve to meet the current situation and the central bank will take appropriate measures to curb rupee volatility. However, Chidambaram clarified that there was no move to introduce any capital control measures to check CAD. "There was -- and is -- no intention to introduce any type of capital control, including controls on repatriations. It is not the policy of the government or the RBI to resort to capital control or reverse the direction of capital account of liberalisation. The measures that were taken last week will be revisited as stability returns," Chidambaram said.

To restrict outflows of foreign currency, the RBI on August 14 announced stern measures, including curbs on Indian firms investing abroad and outward remittances by resident Indians. Chidambaram hoped that capital inflows in due course will correct the position of rupee. He said, with the increase in FDI inflows by over 70 per cent in the first quarter and exports putting up better performance, there is a slight improvement in the current account deficit (CAD).

"CAD is narrower. We are exploring structural measures to further reduce CAD to sustainable levels and, in the mean time, to improve capital flows," he said, adding that the growth promotion will continue to be the focus of the government. Giving numbers to substantiate his version, Chidambaram said, "The overall public debt to GDP ratio has declined from 73.2 per cent in 2006-07 to 66 per cent in 2012-13. The economy's external debt is only 21.2 per cent of GDP, forex reserves are $277 billion," he said.

Growth flat in Q1, may pick up in coming quarters

New Delhi (PTI): Admitting the Indian economy is challenged, Finance Minister P Chidambaram said the country's economic growth is likely to remain flat in the first quarter of the current fiscal, but is likely to pick up in the remaining three quarters.

"Thanks to the global slowdown as well as some domestic factors, the Indian economy is challenged. We expect that the growth trend will remain flattish in the first quarter of the current fiscal," Chidambaram said. "We expect that growth will pick up in the second quarter to fourth quarter," he added. Finance Minister said growth in the remaining three quarters will pick up on back of increase in sown area by about 9.1 per cent, acceleration in Plan expenditure and impact of the projects cleared by the CCI in last few months. India's GDP growth in first quarter of last fiscal was 5.5 per cent. The country's economic growth has slowed down to 5 per cent in the last fiscal year, the lowest in a decade, on account of poor performance of manufacturing, agriculture and services sector.