Market experts expect the rupee's woes to worsen in 2012. According to Dr Bobby Srinivasan, Distinguished Professor, IFMR, Chennai, the rupee will continue to fall from current levels (53.64 per US dollar).

Speaking at a seminar on the INR/USD Exchange Rate at IFMR, Dr Srinivasan said that he expects the currency to further decline by 10-20 per cent.

Short-term target

He thinks that the RBI's interventions to prop up the rupee may not help, and that the central bank is waging a losing battle.

Dr Srinivasan's immediate target for the rupee against the US dollar is 58 and year-end target is 62.

His prognosis is based on the multiple challenges facing the Indian economy — poor fiscal consolidation, uninterrupted increase in the annual budget deficits over the years, and India's foreign exchange liabilities being greater than its forex reserves.

Additionally, our trade deficit is widening rapidly, with imports rising at a much faster rate than exports, putting the trade deficit at an unsustainable 10 per cent of GDP.

RISING DEBT

Also, rapidly rising debt levels could cause the country's level of indebtedness over the next two or three years to reach levels being seen in Europe currently, says Dr Srinivasan.

He said that India could be headed for a major crisis, unless the systemic issues are addressed.

CORRECTIVE ACTION

If no corrective action is forthcoming immediately, tougher action will be required at a later point in time.

This could include measures such as restricting convertibility, additional duties on imported goods and surcharges on imports such as the one on gold.

> anandk@thehindu.co.in

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