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It is preposterous to hold State governments’ finances responsible for the India’s fiscal deficit, said Rathin Roy, Director, National Institute of Public Finance and Policy here.
Speaking at an interactive session on ‘Depreciating rupee : An economic weakness?’, organised by the Chennai International Centre (CIC), Roy, who is also a member of the Prime Minister’s Economic Advisory Council, said that last year the government spent 72 per cent of its borrowing on revenue expenditures, whereas the sigma of revenue deficit of all States, was zero.
How can you blame the States for fiscal deficit slippages, Roy asked adding that as a prudent public policy measure, the government should fund all its revenue expenditure through tax collections.
Roy said terms like stronger or weaker to define the performance of rupee is incorrect.
“It’s like saying the price of banana is stronger than the price of oranges,” Roy said adding that what we have to look at is the underlying fundamentals that changes the relative price of currency.
According to Roy, with a Current Account Deficit(CAD) of 2-2.6 per cent of GDP, the rupee was expected to depreciate by 4-6 per cent but in the last six months the rupee has dropped 5-6 per cent to reach 72 levels.
The fall in the rupee could be on account of three reasons — speculators shorting on rupee exposure, rising oil prices and speculation on that, and Trump’s protectionist measures such as tariffs on Chinese imports, increasing domestic production which attracted investors to invest in the US.
Roy said that thanks to the various control measures by the Reserve Bank of India(RBI), the rupee has not been as volatile compared to other emerging market currencies.
Reasoning why the spiralling oil prices and rupee depreciation does not deter people from travelling abroad for leisure and higher studies, Roy said the top 100-million-people community must collectively introspect about their consumption pattern.
S Krishnan, Principal Secretary, Government of Tamil Nadu, moderated the discussion.
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