Rupee should not become too strong, says Subramanian

Making a case for supportive exchange rate policy, Chief Economic Advisor Arvind Subramanian today said the rupee should not be allowed to become too strong as it hurts exports and economy in general.

"All the evidence is that in order to be more open, one supporting policy with experience shows is that you have to have a supportive currency. If the currency becomes too strong, it is not easy to keep open markets because a lot of goods come in and industry feels the pressure," he said.

India needs to have supportive exchange rate policies, he said, adding that the rupee should not become too strong.
 

"For those who say we will do other things to make the economy competitive, my response is use all the instruments available and don't rule out exchange rate as an instrument," he said at the CII event here.

He wondered as to why the industry is not coming out in support of exchange rate policies that will be conducive to India being more open, able to be more competitive and to export a lot.

Exchange rate is a very important instrument for maintaining competitiveness and for boosting growth, he emphasised.

Terming it as a mistake and misguided view that strong currency is a sign of national or economic strength, he said, "That is a mistake that we should not make and that is something we should be careful about. If you look at the last two years, our country has lost competitiveness from exchange rate by 10-15 per cent and that is a huge loss in competitiveness that is effecting our exports."

Clothing, pharma and leather sectors have been impacted due to this, he said.

To a query on what should be done, Subramanian said: "The reason we are experiencing this is because a lot of capital is flowing into India, people are rightly bullish about the Indian economy... We are not intervening and we are allowing the rupee to appreciate."

On a question whether we are making a mistake by allowing the rupee to appreciate, he said "that is a question that you know another city in India will answer and not New Delhi".

Subramanian dismissed the argument that the era of globalisation is over.

"While hyper globalisation is dead, globalisation is alive. We may not get rapid increase in trade in the world, but we are not going to get rapid declines either. So, it's not a bleak scenario," he said.

He emphasised that India has interest in keeping world markets open.

"Therefore, we need to take leadership and that leadership means we should also be willing to open our markets in return for others opening their markets. That's why features like the European Union, free trade agreements are worth thinking about," he said.