The government, on Wednesday, maintained that even as it had been taking a number of fiscal and administrative measures to contain the price spiral, it was the rupee depreciation that had been contributing to inflationary pressures.
“The decline in the exchange rate value of the rupee makes imports expensive. In situations where the higher cost is passed on to the consumers, it would contribute to inflationary pressures and general price rise,” Finance Minister P. Chidambaram told the Lok Sabha in a written reply.
Even as the rupee is now hovering around the 55.40-55.45 level against the dollar, after having touched a record low of 57.32 on June 22, and the WPI (wholesale price index) inflation also easing marginally to 7.25 per cent in June from 7.55 per cent in the previous month, Mr. Chidambaram said: “The government has taken a number of fiscal and administrative measures to check inflation, which resulted in moderation of inflation to around 7-7.5 per cent in the recent months.”
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The decline in rupee value, the Finance Minister pointed out, was mainly on account of supply-demand imbalance in the domestic foreign exchange market.
“This is due to widening trade and current account deficits and slowdown in portfolio flows on account of escalation in euro crisis and strengthening of the dollar in the international market,” he said.
To stem the rupee slide, the government and the Reserve Bank of India (RBI) had taken a number of steps to facilitate capital inflows, boost exports and, thereby, augment the supply of foreign exchange into the country. Among the steps taken were a hike in the FII investment limit in debt securities, a higher interest rate ceiling for foreign currency NRI deposits and deregulation of interest rates on rupee-denominated NRI deposits.
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In another written reply, Minister of State for Finance Namo Narain Meena said “The uncertainty in global financial markets due to recent developments in the eurozone had some impact on India.
“The government has been calibrating economic policies to mitigate the impact.”