New Delhi: Fighting inflation is a priority for the government but it will not calibrate the rupee to fight the price rise because India wants to maintain a transparent foreign exchange regime, Commerce and Industry Minister Kamal Nath said on Monday.
“We have no intention to calibrate rupee for purposes of fighting inflation. Our exchange rate is transparent and credible,” Nath told reporters here.
But he said fighting inflation “was not only a necessity but also a priority for the government”. Without specifying, the minister said the government would continue to take necessary steps to check the price rise.
While rupee had seen a sharp appreciation in 2007-08, it has lost close to 9% this fiscal making the landed cost of imports expensive. Some analysts wanted the government to maintain a strong rupee.
Many of the steps like scrapping import duty on a number of items like edible crude oil, have been neutralised by the rupee losing value. If the trend of rupee loss continues, it could add to the inflation which has hit a 13-year high of 11.05%.
High crude oil prices are draining government finances and the country’s foreign exchange reserves. Rising trade deficit, mainly resulting from expensive crude imports, “is a matter of serious concern,” Nath said. Crude oil prices have shot up from $70 per barrel to over $130 a barrel since August 2007.
Though exports showed a resilient growth of over 23% in 2007-08 fiscal despite rupee appreciation, imports shot up by over 32%, leaving a huge trade deficit of over $80 billion.
The trade gap in the first month of this fiscal galloped by 44.8% to $9.87 billion.
Experts feel if this trend continues, the country’s trade deficit could well exceed $100 billion in 2008-09.
The widening of trade gap is also being linked to the government banning exports of a host of commodities like non-basmati rice, wheat and pulses.
When asked whether export bans could be extended to other items, Nath retorted “this is an unfair question”.