Markets recover as PM calls meet to take stock of macroeconomic situation

Saturday meeting to take stock of rupee, oil

Prime Minister Narendra Modi will chair a high-level meeting on Saturday to take stock of the country’s macroeconomic situation, against the backdrop of a falling rupee and rising petrol and diesel prices.

Finance Minister Arun Jaitley, Secretary Hasmukh Adhia and other senior officials are expected to attend the meeting, during which a presentation will be given on the state of the economy, according to sources. 

The rupee, which hit a fresh low of 72.91 against the dollar on Wednesday morning, recorded a sharp recovery after Economic Affairs Secretary Subhash Garg said the government and the Reserve Bank of India would do everything to ensure that the currency did not slide to unreasonable levels. The rupee closed at 72.19 a dollar.

“No fundamental rationale for the rupee to depreciate to levels we saw till yesterday (Tuesday). It reflected overreaction of market operators...,” tweeted Garg, who will also attend the PM’s meeting. Sources familiar with the developments said members of the Prime Minister’s Economic Advisory Council would not be part of the meeting. Modi, they said, had not asked for any inputs from EAC members on the recent surge in prices of petroleum products and the fall of the rupee.

Officials said Saturday’s meeting would focus on the outlook for global crude oil prices and the rupee, the global economic situation, impact of trade wars and protectionism, and India’s current account and inflation concerns.

The Opposition has stepped up attacks on the Modi government in recent weeks over the rupee fall and economic situation.

The government has so far refused to bow to pressure from the Opposition for cutting excise duties on petrol and diesel. 

The finance ministry’s contention is that every rupee per litre cut would lead to revenue foregone of around Rs 140 billion.

Speaking to journalists on Wednesday evening, on the issues likely to be discussed, a top official said that when it came to the impact of global oil prices, the options before the government were limited. While there was no shortage of oil, the Organization of Petroleum Exporting Countries (OPEC) was creating shortage to keep prices up, the official said.

The official said the Centre was committed to meeting its fiscal deficit target and hence the government would not cut excise duties for now, as doing that at the current level of the rupee would lead to a twin deficit problem. The only long-term solution to enable cutting of excise duties, the official said, was to increase the non-oil share of taxes.

Officials did not comment on whether any fresh decision would be taken on cutting the Centre’s excise duties, though states like Rajasthan, Andhra Pradesh and West Bengal have cut the value added tax on petroleum products.

International crude oil prices inched towards their highest level this year on Wednesday, after a drop in US crude inventories and as the prospect of the loss of Iranian supply added to concerns over the delicate balance between consumption and production. Brent crude futures touched $79.66 a barrel, the highest since late May, when the price pushed above $80.