The Reserve Bank of India (RBI) Deputy Governor, K. C. Chakrabarty, on Wednesday, said that the country should be ready to see depreciation in the value of rupee if it did not bring down its fiscal deficit, current account deficit and inflation.
“The rupee will keep depreciating unless fiscal deficit, current account deficit and inflation come down. If our fiscal deficit is high, current account deficit is high, inflation is higher than of the U.S., and still if the currency does not depreciate then we have a problem….because this against financial stability. So long as these conditions do not undergo a change, rupee has to depreciate,” said Dr. Chakrabarty while addressing IIFL’s fifth global investors conference here. He, however, said the depreciation should be orderly. “Orderly depreciation of the rupee means the economy is doing well. If it is not orderly depreciation, it means there is a problem,” he added.
On fiscal deficit, Dr. Chakrabarty said that improvement in productivity and efficiency would alone bring down fiscal deficit.
Stating that banks had to change their credit appraisal process and policies, he said, NPAs were not a problem till now but the process was a problem and “we have initiated a lot of processes.”
He also said that the RBI was compelling banks to take action on bad assets and at the same time it was telling them to improve their credit appraisal system.
On inflation, he said “It is starting to come down and his own assessment is that it will start going down and may be in one-and-a-half-years it will reach the target of 5.5-6 per cent,” he said.
On growth he said it had come down much below the trend rate. “Whether 5 per cent can become 4.5 per cent or 5 per cent will become 5.2 per cent, I am not going into it. Also, significantly, 90 per cent of our problems are local,” he added. He expected growth would be in the 5.5-6 per cent range in 2014-15.