Weak rupee raises export competitiveness, says PM

Prime Minister Manmohan Singh today sought to show the positive side of depreciating rupee saying it is good for the economy as it increases export competitiveness and discourages imports.

"To some extent, depreciation can be good for the economy as this will help to increase our export competitiveness and discourage imports", he said in his statement to both houses of Parliament.

The Prime Minister said part of the rupee depreciation, "was merely a needed adjustment. Inflation in India has been much higher than in advanced economies. Therefore, it is natural that there has to be a correction in the exchange rate to account for this difference."

The rupee touched an all time low of 68.80 to a dollar earlier in the week, though it strengthened to below 66.

Admitting that sudden decline in the exchange rate was "a shock", Singh said, "we will address this through other measures, not through capital controls or by reversing the process of reforms".

He attributed the decline in value of rupee to host of global and domestic factors like high current account deficit (CAD), US Federal Reserve plans to taper quantitative easing measures and tensions in Syria.

The CAD, he said, rose "mainly on account of huge imports of gold, higher costs of crude oil imports and recently, of coal. On the export side, weak demand in our major markets has kept our exports from growing. Exports have been further hit by a collapse in iron ore exports. Taken together, these factors have made our current account deficit unsustainably large."

Ultimately, the value of the rupee is determined by the fundamentals of the economy, Singh said, adding "while we have taken a number of actions to strengthen those fundamentals, we intend to do more."