On Saturday Finance minister Arun Jaitley promised more steps to stabilize the rupee and to reduce current account deficit (CAD) and assured businessmen that India would be agile in its response to global trends impacting the economy.
Arun Jaitley said the depreciation in the rupee and the high current account deficit were transient factors that had indeed affected India, but these had fallen short of impacting capital flows of long-term nature — foreign direct investment (FDI), addressing the 16th Hindustan Times Leadership Summit here.
The minister’s assurance of more policy measures comes in the wake of the domestic currency weakening beyond 74 on Friday against the dollar after the Reserve Bank of India decided to keep policy rates steady. The rupee recovered some of the lost ground in the inter-bank foreign exchange market on Friday to close trading at 73.77, down 18 paise from its previous close.
“As far as the CAD is concerned, it is obviously linked to global oil prices in the Indian context. The way oil prices have been going up, there has been some adverse impact on the CAD. We are trying to take measures to narrow it down. Some more steps are likely,” Jaitley told business leaders and policy makers at the event. The government on 26 September raised the import duty on 19 non-essential items, including refrigerators, air-conditioners, jewellery, diamonds and jet fuel, accounting for annual imports worth Rs 86,000 crore, to arrest a widening CAD.
The minister said that the fiscal woes India was facing on the currency and trade fronts were transient while fundamentals of the economy would support strong growth over the next two decades.
India’s current account deficit in the June 2018 quarter rose to a four-year high of 2.4% of GDP, or $14.3 billion, which has put further pressure on an already weakening rupee.
“The achievement of a consistent growth rate of 7.5 % plus or minus in today’s global situation is the highest. There are huge avenues of growth for India over the next 10-20 years, which is what investors are looking at. For example, the kind of investments taking place in rural India is adding more to the size of India’s middle class,” the minister said. He added that a growing middle class in India would help not just the country, but the global economy as well. Growing economic activity in the North Eastern region as well as more women securing employment would also help in this growth of the middle class, he said.
Jaitley also said he was confident of meeting the fiscal deficit target of 3.3% for the current fiscal year as direct tax collections had been strong.