Shockwaves make FM embark on a rescue mission

Chidambaram says steps to counter 2008 crisis also led to rupee slide

Finance Minister P Chidambaram conceded for the first time that domestic factors, too, are responsible for the depreciation of the rupee.

Replying to a question by Ravi Shankar Prasad, deputy leader of the Opposition in the Rajya Sabha, during question hour, Chidambaram said other than the global economic environment, decisions taken at home to counter the impact of the 2008 economic meltdown were also responsible for the depreciation of the Indian currency.

The finance minister said: "There are domestic factors. One of them is we allowed fiscal deficit to be breached because of certain decisions we took which brought us growth and stabilised economy; but we paid the price for it. We are taking steps to correct the fiscal deficit. We will not breach the new fiscal targets.

"The current account deficit is a concern; we spent more dollars largely for essential commodities like oil. We are taking steps to contain the current account deficit.

"We allowed current account deficit to swell because of certain decisions that we took during the period 2009 to 2011."

This was the period when the government announced stimulus to ward off impact of collapse of western economies. Pranab Mukherjee was the finance minister from 2008 to 2011.

"It brought us growth, it stabilised the economy, we staved off the very serious consequences of the 2008 collapse of the US economy. But it cost us in terms of fiscal deficit and current account deficit," Chidambaram added.

According to the finance minister, the government has taken steps to check the fiscal deficit and is now on the path to fiscal consolidation.

The finance minister said the exchange rate was remarkably stable between August 2012 and May 2013, but the rupee has come under pressure since May 22.

"The currencies of all the emerging economies have come under pressure. For the moment we believe the value of the rupee has overshot its true value," he said, while advising analysts to avoid speculating on the point where the rupee will settle in relation to the dollar.

"We have to be patient, we have to be firm, we have to be clear-headed... in order to strengthen the fundamentals of the economy... I am confident that the rupee will find its true appropriate level."

He added that once the investment cycle and manufacturing picks up, it will have a positive impact on the economy and, in particular, the current account deficit.