The rupee's fall this year has clearly overshot limits that can be justified by economic fundamentals, and India has adequate reserves to defend its currency amid global volatility with foreseeable need for any foreign aid whatsoever, deputy chairman of the Planning Commission Montek Singh Ahluwalia said on Friday.
Planning Commission deputy chairman Montek Singh Ahluwalia addresses a press conference in New Delhi. AFP Photo/Prakash Singh
"With 280 billion dollars in reserves, I don't think we will be drawing on currency swap arrangements unless something drastic happens," Ahluwalia said.
Ahluwalia, as the chief "sherpa" for Prime Minister Manmohan Singh at the G20 summit of the leaders of the world's leading economies told reporters that economists, working on varying assumptions, had estimated the Indian currency's value at anything between 59 and 65 rupees to the US dollar.
"Some depreciation was justifiable," Ahluwalia said. "But when it was 69 there was clear overshooting that was not desirable." The government says currency markets had overreacted in the backdrop of a global volatility in the currencies of emerging economies after the US Fed mulled an early pullout of the $85-billion-a-month injection of easy cash every month to prop up the US economy, a part of which flooded markets including India. As insitutional investors pulled out that money out of India, the rupee sank.
The prime minister told the G20 summit that a coordinated policy was needed in ending unconventionarl monetary measures to curb undesirable currency swings.
Leaders of the BRICS group comprising Brazil, Russia, India, China and South Africa met at the summit's margins on Thursday to affirm a plan to built a joint contingency reserve arrangement (CRA) that will help members draw funds from a common $100 billion facility, to which India has pledged $18 billion.
"What is not yet clear is what are the terms on which you can draw," Ahluwalia said, adding that it will involve some interest payments and also be linked to the percentage share of the contribution of each member to the fund. However, the fund does not involve any upfront contribution and only constitutes a pledge, he said.
The BRICS fund is only a long-term measure to help India, and has no immediate relevance or need in the context of the rupee's current problems. India already has a $15 billion bilateral arrangement for a currency swap loan from Japan, and that also is not needed now, Ahluwalia said.
India also has the intermediate option of increasing its contribution to the International Monetary Fund from its reserves and boost its currency cushion.
"Markets would take note of that," Ahluwalia said.