Will a volatile rupee make the stock market even more volatile?

Left to Right- Mr. Somu Krishna Murthy, President, Consumer Guidance Society, Vijayawada, Prof. K. V. Rao, Vice Chancellor, Acharya Nagarjuna University, Guntur, Mr. V. G. K. Krishna Murthy, Managing Director, IKF Finance Limited, Vijayawada, Ch. Diwakar Babu, General Secretary, Consumer Guidance Society, Vijayawada at the Business Standard Smart Business event held on 6^th Aug 2013 at Vijayawada in association with Consumer Guidance Society, Vijayawada.

Sliding down of rupee cannot be viewed in isolation, nor can it be dubbed as a temporary phenomenon. According to K. Viyyanna Rao, Vice Chancellor of Acharya Nagarjuna University, the volatility is linked to underperformance of the economy over a period of time. Addressing a seminar on whether a volatile rupee makes the Indian economy even more volatile, organised by Business Standard in association with Consumer Guidance Society (CGS) at Vijayawada, Mr. Rao said that the growth rate of the economy which registered an impressive 8.6 percent and 9.3 percent in 2009-10 and 2010-11, has started decelerating and came down to 5 percent in 2012-13.

He said that the savings rates also declined from a high of 36.8 percent in 2007-08 to a low of 30.8 percent in 2011-12. The growth rate of the manufacturing sector also turned to a negative of 0.84 percent during the first quarter of 2012-13. The overall rate of growth of credit flow to the industry declined from 26.48 percent in 2010-11 to an average of 15.52 percent in the third quarter of 2012-13.

In this context, Rao felt the need for restoring the incentives for enhancing the saving potential of the people and providing incentives to enhance the performance of the manufacturing sector.

V. G. K. Prasad, Managing Director of IKF Finance Limited, said that the rupee volatility was primarily due to a large current account deficit.

Stating that a mere monetary policy would not be able to arrest the rupee down fall, he emphasised on the need for taking up a combination of both monetary and fiscal measures to tide over the situation.