In the backdrop of the declining value of India's currency, Planning Commission Deputy Chairman Montek Singh Ahluwalia on Sunday said the government has not drawn any red line on the rupee, which he felt has over depreciated.
"I don't believe that either the government or the RBI have taken a view that we are drawing a red line on which rupee should be. At the moment, in my view, the rupee is over depreciated," Ahluwalia told Karan Thapar in an interview on tv channel CNN-IBN's show 'Devil's Advocate'.
Last week, the rupee touched an all time low of 65.56 against the dollar on Thursday but recovered to 63.20 on Friday on Finance Minister P Chidambaram's pep talk and suspected intervention by the Reserve Bank. The rupee has depreciated over 17 per cent against the dollar since April-end this year. According to Ahluwalia, the steps taken by the RBI, including control of capital transfers, were misinterpreted by the markets.
Earlier, RBI Governor-designate Raghuram Rajan and Economic Affairs Secretary Arvind Mayaram had ruled out bringing back capital controls. Explaining further, Ahluwalia said serious investors look at what authorities say when markets are troubled. On the possibility of India going to IMF for funds, Ahluwalia said: "(It is) absolutely ridiculous suggestion.
The scale of facility you would need to get from IMF is very small compared to the (foreign exchange) reserves you have." Ahluwalia advocated the use of foreign exchange reserves as a measure to limit the current account deficit (CAD). The government aims to cut it down to USD 70 billion, or 3.7 per cent of the Gross Domestic Product this fiscal.
"Now in my view, there is no point whatsoever having foreign exchange reserve if you are not going to use them when necessary," Ahluwalia said. According to Ahluwalia, the CAD would be lower this fiscal than it was in 2012-13 (USD 88.2 billion, or 4.8 per cent of the GDP), on account of reduced gold imports and there would be a slack in demand of petroleum products due to sluggish economic growth. On the efforts made by the Cabinet Committee on Investment set up to deal with held up projects, he said the power projects having generating capacity of 78,000 MW would have fuel supply arrangements in place by the end of this month.
According to Ahluwalia, 95 per cent of government s efforts at this moment should be in trying to make sure that the impediments to growth are removed. However, he admitted that there is no visible response to many policy decisions taken so far by the government to remove impediments to growth.
"I believe...we have done a lot, at the moment there isn't evidence yet of a response. But remember, you take a policy step, there is a time lag," he said. On the statement of Aditya Birla Group headed by Kumar Mangalam Birla that USD 10 billion worth of its projects were held up, he said, "Let us be clear, the first priority that the Cabinet Committee on Investment quite rightly gave was for power projects that are supplying power to the grid."
"We are not saying that Aditya's case is not a good one. I personally think we should give that too but his was the next round I-captive power plant. They are being considered now," he added. On meeting fiscal deficit target this year, he said: "If you are serious about meeting the fiscal deficit and you find that there is not enough revenue, you just have to cut expenditure and any finance minister can cut expenditure...It is not a pleasant thing to do but he (finance minister) has to do it."
On swap arrangements with others, he said: "... if you are a normal country and you needed a liquidity protection you would use a swap arrangement or you would go to the IMF. We don't need to do any of that." Ruling out the possibility of swap arrangements, he said, " We only have swap arrangement with Japan.
We don't have swap arrangement, many other countries do...that swap arrangement is of USD 10 billion, we have USD 280 billion of our own money." About exploring the idea of swap arrangements with Bank of England and with the European Central Bank, he said, "...as a general rule, I am in favour of exploring the possibility of regional swap arrangements.
I don't believe that the ECB would be interested in swap arrangement with a non reserved currency." On regional swap arrangements he said, "It is irrelevant at this stage, when you are in middle of a problem. That's not time you join arrangements." "..there is a Chiang Mai arrangement where we are not members of, but I think, in long term, this is an issue that both the Finance Ministry and External Affairs all have to think about, do we need to join a regional arrangement?"
About rise in government subsidy bill due to Food Security Bill, Ahluwalia said: "...(it) is just one component of subsidies. If we want to keep total subsidies under control, I don't think you should regard the food subsidy as the one that is most vulnerable."
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