Domestic factors responsible for rupee depreciation too: Chidambaram

Decisions in 2008 taken to ensure growth, stable economy, depreciated the rupee

Domestic factors, not just the global economic environment, are also responsible for the depreciation of the rupee, Finance Minister P Chidambaram accepted for the first time, in the Rajya Sabha today.

 

Speaking during Question Hour, replying to deputy leader of opposition Ravi Shankar Prasad Chidambaram said: “decisions taken at home to counter impact of 2008 economic meltdown were among the reasons for depreciation of the Indian currency.”

 

"I did say not only external but domestic factors. There are domestic factors. One of them is we allowed fiscal deficit to be breached because of certain decisions we took which brought us growth and stabilised economy; but we paid the price for it. We are taking steps to correct the fiscal deficit. We will not breach the new fiscal targets.

 

 The current account deficit is a concern, we spent more dollars largely for essential commodities like oil. We are taking steps to contain the current account deficit," the Finance Minister said.

“We allowed current account deficit to swell because of certain decisions that we took during the period 2009 to 2011," he said.

 

This was the period when government announced stimulus to ward off impact of collapse of western economies.

 

Pranab Mukherjee was Finance Minister from 2008 to 2011.

 

"It brought us growth, it stabilised the economy, we staved off the very serious consequences of the 2008 collapse of the US economy. But it cost us in terms of fiscal deficit and current account deficit," Chidambaram said.

 

The government, he said, had steps to check fiscal deficit and is now on path of fiscal consolidation. The finance minister said the exchange rate was remarkably stable between August 2012 and May 2013 but rupee has come under pressure since May 22.

 

"All the currencies of all the emerging economies have come under pressure. For the moment we believe that the value of the rupee has overshot its true value," he said, while advising analysts to avoid speculating on the point where the rupee will settle in relation to the dollar.

 

"We have to be patient, we have to be firm, we have to be clear headed... in order to strengthen the fundamentals of the economy," he said. "I am confident that the rupee will find its true appropriate level."

 

"Once the investment cycle picks up, manufacturing picks up, I am sure it will have positive impact on the economy and in particular the current account deficit," he said.