Rupee depreciation: economists say government measures will improve sentiment

NEW DELHI: Economists say the government's move to deal with the current account deficit and rupee depreciation could improve sentiment and the limited response needed, but some felt they suggested the panic of the part of the government.

The government on Friday announced a series of measures to bring in additional capital inflows of $ 8-10 billion to stop the depreciation of the rupee and solve the underlying problem of high current account deficit.

"We consider the government's cautious response to be appropriate because India's macroeconomic fundamentals are much better now than in 2013 – stronger growth, stable inflation and fiscal commitment – and do not require no instinctive reaction, "said Sonal Varma of Nomura. a research note.

Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, did not know how much capital would come from these measures, but agreed that no panic reaction was needed.

"Although we have to be vigilant about the depreciation of the rupee, it is not necessary to press the panic button and announce Big Bang measures because our fundamentals are stronger than others, "added Bhardwaj.

The former chief statistician of India, Pronab Sen, had a different point of view. "I am puzzled by these measures because they seem to be sending out wrong signals," Sen said. "First, they give the impression that the government is panicking, which worries investors and encourages speculators, because it is rightly assumed that the government knows much more than the average investor / speculator." They want to collect between 8 and 10 billion dollars despite the RBI holding $ 400 billion of foreign exchange reserves, "he added.

Enabling manufacturing entities to use the ECB for $ 50 million, with a minimum maturity of one year from the previous three-year period, is another measure with which economists are disagreement.

"Although these measures do not seem to have a long-term impact, the government has tried to encourage the creation of capital, which does not bode well for the economy in the medium and long term," he said. Devendra Pant, Chief Economist of India Ratings.

According to Sen, by reducing the life of the ECBs to three years, the government has made external borrowing attractive for short-term capital needs, which the Indian banking sector does not suffer.