Rupee slide a concern, but no capital controls: PM

Expressing concern over the sharp slide in the value of the rupee, Prime Minister Manmohan Singh on Friday said the Indian currency's decline is caused by external developments. He further said that there was no question of capital controls and India would remain an open economy.

"The depreciation in the value of the rupee since end of May is a matter of concern," the prime minister told the Lok Sabha. "What triggered the sharp depreciation in rupee was the market's reaction to unexpected external developments," he added.

"Clearly, we need to reduce our appetite for gold, economise the use of petroleum products and take steps to increase our exports," he said. At the same time, the fall in rupee's value is good to some extent as it makes exports competitive, he added.

The prime minister also assured that the country's growth which has slipped will pick up soon, and everything would be done to contain the fiscal deficit at 4.8 percent of the gross domestic product (GDP).

The Indian rupee has lost almost 20 per cent against the US dollar this fiscal, largely due to pull-out by foreign funds from the Indian markets after the US central bank hinted that it would lower fiscal stimulus as the economy shows sign of recovery.

The rupee fell nearly 4 per cent to hit a record low of 68.85 per dollar on Wednesday, the biggest single-day percentage loss since October 1995. But the currency recovered and surged 3.5 percent to close at 66.55 against a dollar a day later.

In an effort to lift sentiments in the currency markets towards the rupee, he also assured that there would be no measures on capital controls.

"Last two decades have seen India grow as an open economy and benefited from it. There is no question of reversing these policies," he said. "I would like to assure the house and the world the government is not contemplating any measures on capital controls."

The prime minister said the fundamentals of the Indian economy had continued to remain strong and that both the central bank and the government were taking steps to contain inflation. He said efforts were also underway to contain the current account deficit.

"Growth-friendly way to contain the deficit is to spend carefully, especially on subsidies that do not reach the poor. We will take steps," the prime minister said, while also seeking the support of political parties to pursue good policies.

"The easy reforms of the past have been done. For more difficult reforms, we need political consensus. I urge across political parties to work towards and join in the government's efforts to put the economy back on the path of stable growth."

Highlights of PM's statement

• Rupee's share depreciation a matter of concern
• Sharp dip in rupee due to certain unexpected external factors
• US federal reserves tapering has caused general weakening in global currencies
• We need to reduce our appetite for gold, economise use of petroleum products
• Govt confident of lowering current account deficit to $70 billion this fiscal
• Part of rupee depreciation needed adjustment as inflation in India was much higher than advanced countries
• RBI and govt have taken number of steps to stabilise rupee
• Government not contemplating capital controls
• Sudden decline in exchange rate certainly a shock which will be adressed by other measures not by resorting to capital controls or reversing reforms
• Growth in first quarter of 2013-14 likely to remain flat
• Govt will do what ever is necessary to contain fiscal deficit at 4.8 pc of GDP
• Growth will pick up in the second half of the current fiscal
• Depreciation of rupee and rise in oil prices will put further upward pressure on inflation
• Fundamentals of Indian economy continues to be strong
• Foreign exchange reserves at $278 bn more than sufficient to meet requirement
• There is a liquidity problem
• We will need to ensure fundamental of the economy remain strong so India continues to grow at healthy rate for many years to come
• We have difficult reforms ahead such as subsidy reduction, opening of insurance and pension, implementation of GST