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On a day the rupee posted its biggest fall in 18 years against the US dollar, Finance Minister P. Chidambaram appealed for ‘patience’, saying that the currency was ‘under-valued’.
The rupee plunged to 66.30 before closing at 66.24 against the dollar. At the same time, the BSE Sensex shed nearly 600 points while the NSE Nifty lost nearly 190 points.
There were various reasons for the rupee and equity market slump, such as geo-political tension building up in Syria, and the fear that the Food Security Bill would further inflate the fiscal deficit. Chidambaram, however, claimed that the fiscal deficit would be contained to 4.8 per cent, as projected in the Budget.
Talking to the media on the rupee during the early hours of trading, the Finance Minister said, “I think we simply have to be patient and firm and do whatever is required to be done and the rupee would find its appropriate level. The rupee has overshot and is under-valued.”
He was addressing a press conference on the decisions of the Cabinet Committee on Investment.
The Minister said every emerging market was challenged today and India was not untouched. The impact was being felt at both the equity and currency markets, he added.
Fiscal deficit
The rupee, which has been on a continuous slide, has lost over 17 per cent this year. With its devaluation, there is fear the oil import bill will rise and so will the subsidy. This, along with Food Security Bill passed by the Lok Sabha on Monday, is making the fiscal deficit target of 4.8 per cent look vulnerable.
The total food subsidy budgeted in the current fiscal is Rs 90,000 crore, of which Rs 10,000 crore is for implementing the Food Bill.
However, Chidambaram claimed that the fiscal deficit would be contained at 4.8 per cent of gross domestic product even after doling out subsidies under the food security programme.
“The fiscal deficit of 4.8 per cent of GDP and the absolute number indicated in the Budget is a red line and the red line will not be breached,” he said while assuring that enough money had been provided by the Government for the cost of the food security programme for the remainder of this fiscal.
“As the roll-out takes place in States, money will be provided. We think that after providing for the Food Bill, we will still remain in the limit we have set for ourselves in the Budget papers,” he added.
Industry worries
Meanwhile, industry chambers also expressed concern.
“Such a large outlay at this point in time would definitely have a negative impact on the fiscal deficit. This needs to be managed. The larger concern is regarding the effective implementation of such a high-profile and critical social agenda of the Government,” CII President Kris Gopalakrishnan, said.
>siddhartha.p.saikia@thehindu.co.in
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