We have done reasonably well so far, he said, noting that the governments spending over the past four months was more or less on target. Chidambaram said there was some justification for scepticism that the Centre might fail to reach the fiscal deficit target as the deficit had often exceeded government estimates. But he was being tight-fisted on spending, he said.
He said the real exchange rate of the rupee currently is more or less correct. Chidambaram said the government was in no hurry to make the rupee fully convertible as an immediate move in that direction could lead to a short-run capital flight out of India.
It is not our intention to make the rupee weaker or stronger. We want the rupee to reflect the fundamentals of the economy, he said. The real effective rupee exchange rate today is more or less correct.
Chidambaram said a recent slowdown in annual export growth to about 14 per cent was probably attributable to some companies postponing decisions pending the governments revised 1996-97
(April-March) budget, presented to Parliament last month.
But he said he had been told export growth had picked up in August, although he had not seen any figures.
Chidambaram said the rupee was already convertible on the current account and was convertible on the capital account in many respects. We need to proceed cautiously regarding full convertibility, he said.
Asked if moving to full convertibility could damage Indias economy, Chidambaram said: One doesnt know what will happen. There is a downside to making the rupee fully convertible today, given our level of (foreign exchange) reserves.
Its possible that in the immediate short run, there will be a flight of capital. Given the level of our reserves, is it necessary to run that risk, however small it may be? My answer at present is no because there is no compelling need to do that.
