Fresh Government remedies fail to stem rupee’s slide

All About Fresh Government remedies

After Finance Minister P. Chidambaram announced new steps to narrow the current account deficit (CAD) in order to protect the currency as fears about the slowing economy deepened, the rupee weakened to a record low on Monday. At the parliamentary session on Monday, Chidambaram vowed to limit the current account deficit to $70 billion and an estimated 3.7 percent of Gross Domestic Product ( GDP) for the fiscal year ending in March.

He proposed that a slew of expected steps, such as easing rules for obtaining loans abroad and increasing Indian deposits abroad, would meet the target. While a lack of necessities had disappointed investors in the beginning, taking the rupee to 61.30 per dollar and not far from a record low of 61.80 hits last week, Chidambaram followed up later in the parliamentary session with information that supported some of the key concerns.

He said the combined plans unveiled on Monday would carry this fiscal year a total of $11 billion, bringing his approximate capital inflows up to $75 billion for the year. The protection of the rupee has so far relied on the unsafe policy of the Reserve Bank of India to drain cash and shorten short-term interest rates, but both measures have failed to support the currency, rendering government intervention crucial in the eyes of investors. Chidambaram said he wants to make it clear that there is no need to worry, referring to the current account deficit (CAD), even though we have a problem.

Fresh Government remedies fail to stem rupee's slide

Chidambaram, as is widely estimated, said India will aim to reduce imports of silver, gold, and ‘non-essential’ imports, while also reducing oil demand. He also anticipated raising funds overseas to raise capital inflows, enabling public sector financial firms to trade debt to finance long-term infrastructure projects, and raising money through deposits targeting Indian people overseas. As some analysts had expressed agnosticism about whether India will be able to keep the deficit to the amount promised on Monday, Chidambaram put some numbers to his suggestions. There is a need for bold and successful initiatives, said Rupa Rege Nature, chief economist at Bank of Baroda.

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