The Indian rupee has risen against several developed and emerging market currencies which is not favourable for a country that runs a current account deficit, according to Montek Singh Ahluwalia, the former deputy chairman of the erstwhile planning commission.
“Anyone who says the rupee has depreciated and implies that the rupee should not have depreciated doesn’t realise that the rupee has actually appreciated against the Euro, the yen… a lot of other currencies,” Ahluwalia told Moneycontrol in an interview.
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“And for a country that is running a current account deficit that is an absurd outcome. So, I don’t share the view that the rupee has depreciated.”
Ahluwalia’s views are in line with that of the government’s which has been insisting that while the rupee has fallen against the dollar, its losses are lesser that most developed and emerging market peers. Effectively, the rupee has actually gained against many of these other currencies, which hurts our export competitiveness.
Meanwhile, the opposition has tried to corner the government on the issue of the currency depreciation.
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In the year gone by, the rupee has been buffeted by financial tightening in the US and financial market volatility that has battered most developed market and emerging market currencies.
Still, despite a widening trade deficit and the likely breach of the current account deficit threshold of three percent of GDP this fiscal year, India’s currency is doing much better than in 2013 when the economy was seen as part of the fragile five in wake of the Federal Reserve’s taper tantrum.
The rupee fell to fresh record lows of 83 to a dollar this year and is expected.
So far this year, the central bank has kept the volatility in check by selling dollars in the market. The government and the Reserve Bank of India have also brought in a raft of measures to boost the rupee, including the facilitation of trade in rupees with certain countries.
“The story of the Indian rupee is one of resilience and stability and we will continue to act with excessive volatility of exchange rate and orderly evolution of exchange rate,” RBI Governor Shaktikanta Das said earlier in December.
