Rupee may not fall further, to hover around Rs 53-55: CII Survey

By Prerna Mishra: The Indian Rupee is unlikely to depreciate further in the immediate future on account of the high current account deficit, policy inaction and high fiscal deficit, as per a CII survey of 35 economic analysts across the country.

However, the current exchange rate of Rs 53-55 is expected to remain static in future too, said the survey.

Among the economists surveyed, 60 per cent believe that the local unit will remain at current levels of Rs 53-55 and that this level represents the medium-term trend. 40 per cent responders opined that the exchange rate could continue to decline. Further, a majority of respondents felt that the situation would remain changeable till the end of the second quarter of the current fiscal year.

Chandrajit Banerjee, director general, CII said, “The Indian rupee has declined more than the troubled Euro and GBP currencies, dropping as much as 25.58% between June 30, 2011 and June 30, 2012. It fell by 9.11% during April 1 to 29 June this fiscal year. This impacts economic confidence, builds up inflationary pressures, and hits industry through rising import costs. The high volatility in the Rupee has added to the complexity of business in the country. The government and the RBI need to tackle the underlying macroeconomic problems that lie at the root of the fall in the rupee in order to provide some stability in business conditions.”

The respondents to the CII survey said that the macroeconomic problems heavily responsible for the plunge in the Rupee. There is a need that government and RBI should address these fundamentals for the longer term rather than taking only short-term steps.

A few suggestions put forward were to review FDI policy in critical sectors, pay oil companies directly from reserves, issuance of dollar-denominated bonds, and further increase in FII limits in the Indian debt market.

An urgent improvement in capital flows with consistent and transparent policies is need of the hour, said the CII survey. Taxation structures for FIIs should be designed clear and transparent.

The deregulation of oil prices would simplify both fiscal deficit and current account deficit. Imposition of limit on gold imports may also help in reducing Dollar demand.

Other macro measures proposed were reducing fiscal deficit, pruning subsidy expenditures, and moving forward on reforms such as GST and passing pending legislation.