Even as the rupee again breached the 60-level against the U.S. dollar on Tuesday following the Reserve Bank’s no-change policy in the wake of the apex bank’s “main immediate macro-economic task” of stabilising the currency, Chief Economic Advisor Raghuram G. Rajan asserted that the RBI and the government were on the same page and working together to achieve stability and growth.
In a statement here, Dr. Rajan maintained that the government would announce “specific measures in the next few weeks” to contain the widening current account deficit (CAD) which has put pressure on the Indian currency and once the rupee is stabilised, the policy-makers will have room for more growth-friendly measures.
“We have already taken some steps on liberalising FDI [foreign direct investment]. We are also exploring some other options for stably and sustainably funding the CAD. We will announce specific measures in the next few weeks,” he said.
Welcoming the central bank’s policy statement, Dr. Rajan stressed that the government and the RBI were firmly convinced of the need to do what it took to stabilise the rupee. “We see this as being friendly to growth over the medium-term. No one should doubt our resolve in this matter,” he said.
Dr. Rajan noted that even as the RBI did what it needed to do, the government was exploring ways to reduce the CAD, which included measures to reduce imports and measures to incentivise or expand exports. “Consequently, we believe the CAD will be brought down significantly this fiscal year regardless of the growth of the outside world…Of course, if growth picks up more strongly in [the] U.S., [the] U.K. or elsewhere, our CAD will also come down faster,” he said.
The CEA to the Finance Ministry, however, made it clear that the government was not looking at any particular level where the rupee should stabilise. “We are not defending any particular level of rupee. We do not associate stability with any particular number. We associate stability with lower volatility...market participants should believe that the rupee is stable,” Dr. Rajan said.
As for the steps that are being contemplated to contain the CAD, which at 4.8 per cent of GDP in 2012-13 and well above the sustainable level of 2.5 per cent of GDP for three years in a row, the RBI described as “a formidable structural risk factor,” Dr. Rajan maintained that although everything was on the table, “we are focusing on narrowing down those options to a set of measures that we will be able to announce”.
In this regard, Dr. Rajan asserted that while the options being considered would include steps to boost exports through a set of incentives, the RBI also had plenty of ammunition to deal with the situation. “We should not doubt the joint resolve of the government and the RBI in taking action to stabilise the rupee,” he said.