Comments
Admitting that rupee volatility was a cause for concern, the Chief Economic Advisor, Dr Kaushik Basu, today called for a “close watch” by the central bank on the forex market.
Although the RBI has been on the right track in managing volatility, watchfulness is a must, given the speculative moves of certain players in this market, Dr Basu said at an ESCAP event here.
He also said the Indian economy would expand by 7.6 per cent in 2012-13. This is more or less in line with the 7.6 +/- 0.25 per cent economic growth projection made in the Economic Survey in March.
Dr Basu highlighted that the rupee had over the last 10 years been inflating at 10 per cent, and the US dollar at 2 per cent per annum — which means the rupee has been losing value against the dollar the last few years.
A certain amount of depreciation of the nominal exchange rate is purely a reflection of the differences in inflation in the last few years, he said.
Dr Basu's remarks on the rupee came on a day when the Reserve Bank of India asked exporters to sell 50 per cent of their retained forex earnings. The rupee recovered 60 paise in early trade to touch Rs 53.24 against the dollar. The RBI also fixed a limit on intra-day trading of foreign currency by banks.
The United Nation ESCAP's (Economic and Social Commission for Asia and the Pacific) flagship publication with the theme “Pursuing shared prosperity in an era of turbulence and high commodity prices” was launched by Dr Basu here today.
Asia and the Pacific face another year of slowing growth as demand for its exports falls in developed nations and capital costs rise, said the report. The Indian economy is expected to expand by 7.5 per cent in 2012-13, an improvement from 6.9 per cent the previous year.
There are indications that the economy is turning around as core sectors, including manufacturing, show signs of recovery, the report added.
Despite the slowdown, the Asia and Pacific region will remain the world's fastest-growing, with China forecast to grow at a robust 8.6 per cent, decelerating from 9.2 per cent in 2011.
Later, Dr Basu said the recent retrospective amendments in income-tax law are unlikely to have a negative effect on investor sentiment and will not impact foreign investment into India.
“This is being seen as a one-off thing…there were certain aberrations, certain misunderstandings on the law that we have adjusted,” Dr Basu said.
Meanwhile, a recent research note by Standard Chartered Bank highlighted that the strong gains in the rupee witnessed in early 2012 have faded, with the USD-INR rebounding in late Q1. Key to this shift in sentiment have been prospects of limited monetary easing in 2012-13 because of upside inflation risks and the weak attempt at fiscal consolidation outlined in Budget 2012-13.
Unsurprisingly, these developments have triggered a reassessment of the positive outlook for India that dominated the markets at the start of the year, leading to a sharp slowdown in portfolio inflows, the research note added.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.