India will issue some austerity measures to aid the fiscal consolidation process, Union finance minister Pranab Mukherjee said in Rajya Sabha on Wednesday. Mukherjee’s comments came after the Indian rupee hit a record low against the dollar as risk aversion in global markets added pressure on a currency already under fire from fiscal and current account deficits that are weighing on growth.
Pranab Mukherjee on Wednesday said in Rajya Sabha that the government is concerened over slowdown in country’s economic growth and it is taking steps to address the issue.
While speaking in the Upper House of Parliament, the finance minister also said that the country’s growth story was intact and the eurozone crisis was affecting the Asian markets.
“There is no need to panic and the slide would be contained when there is certainty in eurozone recovery, ” Pranab said in Rajya Sabha.
As the rupee touched a record low, Opposition today questioned the government in the Lok Sabha on the steps being taken to tackle the situation as it feared that there could be a repeat of 1991, when India saw severe balance of payments problem and even had to mortgage gold.
“The crisis in our economy is growing. Are we heading towards 1991,” senior BJP leader Murli Manohar Joshi said during Zero Hour, adding the situation was becoming backbreaking for the common man due to price rise.
Expressing concern over rising prices and a falling rupee in the international market, Joshi wondered whether the economic meltdown of US followed by that of Europe was now taking India in its grip.
India’s rupee hit a record low against the dollar on Wednesday and stocks fell nearly 2%, as uncertainty over the eurozone debt crisis and weak domestic indicators hit Asia’s third-largest economy.
The Indian unit fell to 54.43 rupees to the dollar in early afternoon, breaching its previous intraday lifetime low of 54.30 struck on December 15.
Traders said they expected the rupee to fall further in coming days with risk aversion hitting global markets and sentiment souring about India because of its ballooning fiscal deficit, slowing economy and political logjam.
“Global uncertainty is in the driver’s seat,” said Priyanka Kishore, forex strategist at Standard Chartered Bank. “There is a tangible risk of the rupee moving towards 55 rupee to the dollar levels,” she said.
The Indian currency has fallen more than 10% since March despite persistent interventions from the RBI, which has regularly bought dollars and only last week announced new measures to support the local unit.
Exporters and other foreign-exchange earners were ordered last Thursday to convert half of their total foreign-exchange earnings kept in banks into rupees, but the move failed to prevent the decline.
Amid the turmoil, the benchmark Sensex was down 1.89% or 308.54 points at 16,019 in early afternoon trade.
Investors across Asia have been dumping risk-sensitive assets on worries about the worsening political upheaval in Greece and buying up dollar holdings, perceived as safe havens in times of financial stress.
But India’s domestic problems have added to the woes, analysts say, namely slowing growth, rising inflation, strained public finances and widening trade and current account deficits.
Foreign investors have also been turned off the country of 1.2 billion people due to recent regulatory moves by the government, which has also stalled on a pro-growth reform agenda.
The falling rupee is bad news for India’s economy, pushing up import prices and aggravating inflation that is running at over 7%, limiting the RBI’s scope to roll back interest rates and spur the economy.
It will also further strain the government’s budget because oil imports — which are priced in dollars — will become more expensive.
Finance minister Pranab Mukherjee already sees a fiscal deficit in 2012/13 of 5.1% of gross domestic product (GDP).
The rupee was Asia’s worst performing currency in 2011, losing more than 20% of its value against the dollar in the calendar year.
The RBI said recently it had spent more than $20 billion in spot-market intervention between September and the end of February.
While the bank has a policy of not commenting on its day-to-day actions in the foreign exchange market, it said in its May bulletin that the currency’s volatility would have been worse without “the magnitude of its intervention.”
–Agencies