With the rupee fast losing value against the US dollar, finance minister Pranab Mukherjee on Friday blamed volatility in global commodity prices for currency depreciation and said deteriorating balance of payment (BoP) situation in several Asian countries also put stress on currencies.
"In several Asian countries, excepting China, the BoP is under stress which leads to currency depreciation," Mukherjee told reporters.
Mukherjee, who is attending 45th annual meeting of the Asian Development Bank Board of Governors in Manila, said certain fundamentals in the Indian economy have to be corrected against the backdrop of the rating agency Standard and Poor’s downgrading outlook for the country’s sovereign rating.
However, he did not elaborate.
Mukherjee, who will assume chairmanship of ADB on Saturday, said the global issues which have a bearing on the Asian economies would be discussed at the meeting.
Although the meeting began on May 2, Philippine President Benigno Aquino III formally inaugurated the plenary marked by an impressive ballets by the local artists.
India’s currency has suffered sharp losses by over 15% in the last few months, leaving a bruising impact on the country’s imports, which mainly comprise crude oil. The rupee depreciation has resulted in the higher landed cost of the crude oil by the state-owned oil marketing companies, which have not been able to pass on the price increase to the consumers.
With prospects of subsidy bill shooting the budgeted target of Rs. 1.8 lakh crore, global rating agency Standard and Poor’s has downgraded the country’s sovereign rating outlook.
The Reserve Bank too has expressed concern over the worsening current account deficit, which is likely to be 3.5 to 4% of the GDP for 2011-12.
Asked about the rating outlook downgrades of the India’s sovereign rating, Mukherjee said fundamentals of the economy have to be corrected. "Fundamentals...we shall have to correct...," he said without elaborating what action the government was mulling.
He said the domestic issues cannot be discussed here since Parliament is in session.
The main areas of concern for Mukherjee were Eurozone and Japan, as they provide a big markets to the merchandise from the developing world.
"Unless recovery in Japan and Europe is fast-tracked….it will have its impact. Eurozone crisis is expected to cast its shadow...," he said.
The finance minister who will assume on Saturday, chairmanship of the ADB Board of Governors for a year, said the Asian region is still doing better than the developed countries.
"We will review the world economy...the (Asian) region is one of the important contributors to the world economy," he said. India will be hosting the ADB annual meeting next year in New Delhi.
According to ADB Bank President Haruhiko Kuroda, Asia‘s economy this year is set to grow by 6.9%, and 7.3% next year. It is the internal demand within the region that is driving the Asian growth.