Rupee may hit 50 per US dollar in a few months: Govt - The Times of India
NEW DELHI: The government on Friday said it expects the rupee to appreciate to around 50 against the dollar over the next three-four months on higher foreign inflows, a development that will help rein in subsidies and also check inflation.
"The rupee has gone below 53 and that reduces the subsidy requirement. If rupee further strengthens, which we hope it will, with the steps the government is taking, we expect it could even touch 50 in the next 2-3 months or four months," economic affairs secretary Arvind Mayaram told reporters. He said the recent policy initiatives are expected to result in higher foreign exchange inflows through the FII and the FDI channels and ease the pressure on the rupee.
On Friday, the rupee rose to 52.50, a level last seen on May 1 before ending the day at 52.86, 16 paise stronger than the previous close. For a currency that was among the worst performers till recently, this was the fourth straight week of gain and the best quarter since June 2009. Since September 13, when the government initiated the so-called reform measures by raising diesel prices and capping subsidized cooking gas sales, the Indian currency has gained around 5% against the greenback.
A gaining currency makes imports cheaper, especially the oil import bill, and cools down inflation. Mayaram said that a one rupee gain translated into 8 basis points reduction in inflation (100 basis points make a percentage point). Going by this argument, nearly a quarter percentage point has been shaved off from inflation in the last two weeks, while the oil subsidy, based on under-recoveries of oil companies that was projected at Rs 1.67 lakh crore, has also come down by around Rs 20,000 crore.
A one rupee change against the dollar results in change in under-recoveries by Rs 8,000 crore. The market, however, is not as bullish. In a research note, Bank of America Merrill Lynch economist Indranil Sengupta estimated the rupee to be around Rs 51 to a dollar this fiscal. Most agencies expect the rupee to hover around 51-52 to the dollar given the global uncertainty.
But even at these levels, there is a gain for the government. "It is not simply in terms of cutting subsidies that you can contain fiscal deficit, (but) by better management of economy also fiscal deficit can be contained," Mayaram said. He said the government may step up the disinvestment drive and will try to keep the fiscal deficit as close the target as possible.
The government has budgeted for a fiscal deficit of 5.1% of GDP for the current fiscal but is facing the prospect of missing the estimate in the wake of lower tax mop up and higher subsidy outgo. Recently, finance minister P Chidambaram said the subsidy bill in the current financial year is expected to rise to 2.4% of GDP from 1.9% estimated in the Budget.
Sensex up 183 points
The government's moves to increase revenues and an assertion that its borrowing from the market for the second half of the current fiscal will not exceed the budgeted figure led to a strong rally on Dalal Street, lifting the sensex by 183 points to 18,763 near its 15-month closing high mark.
The day's rally, that added Rs 73,000 crore to investors' wealth, was also aided by news from Europe that Spain, one of the struggling economies in the continent, has agreed to an austere budget that would contain its fiscal deficit to some extent .