FSDC meet on Thursday to discuss rupee fall, state of markets

The finance ministry and the Reserve Bank of India (RBI) will review developments on the rupee front at a meeting of the sub-committee of the Financial Stability and Development Council (FSDC) this Thursday, but extreme steps to arrest the fall are unlikely.

“We hope to review (these) developments. (But) rupee depreciation is a temporary phenomenon. The government has taken many steps to encourage foreign inflows. We are not intervening,” said a ministry official. The official ruled out imposing any restrictions on outflow of foreign exchange, as it could hurt market sentiments.

The rupee has eroded 17 per cent since July, to close at 51.4 against the dollar on Monday.

The meeting, in Kolkata, would also deliberate upon putting in place a crisis management structure, in some other countries. A concept paper on this is to be finalised.

“We are now giving flesh and bone to FSDC. It does not imply there is a crisis impending. You imagine an extreme scenario that is plausible, but not probable. We are building capacity to face any eventuality. The institutional structure should be clear,” said the official.

The sub-committee, headed by RBI governor D Subbarao, will also look at extending financial inclusion and literacy to areas beyond banking, such as mutual funds and demat accounts. “Financial inclusion and literacy is restricted to the banking sector. However, it is also about penetration of mutual funds and financial products. We are now starting to move beyond banking inclusion in an institutional way,” the official added.

Two technical groups have been set up for this. One has suggested inclusion of financial literacy as a part of the educational syllabus. The National Council of Educational Research and Training) has already constituted a committee to do so. Data collection for financial inclusion has also started. A national strategy on financial literacy is being worked out.

An assessment of stability in the markets will be made and a financial stability report prepared by the RBI is to also be discussed. It would give an assessment of what is happening around the world and have inputs from the finance ministry. The report is likely to be finalised in the meeting. It will also discuss inter-regulatory issues, coordination and development to improve the pace of decision making.