Industry will have to look at the brighter side of the weakening Rupee and focus on exports, according to Chief Economic Advisor, Ministry of Finance, Dr Kaushik Basu.
Policy makers have a relatively limited option in controlling the slide in the Rupee value as the foreign exchange reserve, even if large at $300 billion, is a finite resource. The corporate sector and the Government will have to work together to address the challenge.
Exporters will have to exploit this opportunity without complaining. There is space in the global markets particularly in the context of China conceding competitive advantage as its wage costs grow.
Dollar gains strength as foreign investments are looking at safe havens such as the US Treasury and German bonds or gold, and leaving emerging markets because of the increasing uncertainty in the Eurozone. Industry will have to live with depreciation for sometime as money gets pulled out he said.
Addressing a workshop on the Indian Economy and the Economic Survey organised by the Southern India Chamber of Commerce and Industry, he said the manufacturing sector has to emulate the growth of the service sector. The Government’s role should be to `make things easier’ for business. Automobile sector, pharmaceutical and textile industries have a huge potential, he said.
Dr Basu left industry members at the venue disappointed as they were expecting some indication of measures to boost exports, softening of interest rates and foreign exchange stability, said a senior industry representative. Dr Basu acknowledged that policy measures were needed to drive growth.
Inflation has been controlled at about 7.5 per cent now compared to over 10 per cent a year and a half back. It is expected to drop to lower than 7 per cent in mid-October.
Improved governance and controlling corruption are long term measures that uplift the mood among the public and `unleash entrepreneurial spirit’ particularly among the small businesses that face the most harassment.
He felt that encouraging foreign investments in retail will benefit farmers and small traders in the long run. Modern supply chain management, procurement from farmers and local industry and eventually export of goods by large foreign retailers will benefit all, he said.
Mr Rafeeque Ahmed, Vice President, SICCI, said the Government has to revisit its monetary, fiscal and administrative reforms and FDI policy. More clarity and transparency is needed on taxation issues, accelerated depreciation on plant and machinery should be allowed and weighted tax deduction provided on expenditure for companies going green.