Mumbai: The rupee exchange rate is market-determined, finance minister P. Chidambaram said, indicating there would be relief for those facing problems amid the currency’s fluctuations.
The rupee weakened 0.5% this week to 39.555 against the dollar, snapping three weeks of gains. The local currency has risen almost 12% this year.
“We don’t have a view on the rupee,” Chidambaram said. “It is market-determined. The rupee’s appreciation or otherwise gives rise to stress in some sectors.”
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“We will address those problems,” he added.
The government, which said capital inflows have caused the rupee to strengthen, wants exporters to be more competitive and productive to cope with the effects of the rising rupee. A higher rupee makes Indian goods more costly overseas and erodes the revenue of the country’s exporters.
The government is considering refund of some duties as a relief measure for exporters. It has cut customs duty on some products and has also announced subsidized loans and tax breaks to help exporters.
The second fastest pace of economic growth among major economies has attracted overseas investors to buy as much as $18 billion (Rs71,280 crore) of stocks and bonds in India this year.
“You must also see the real effective exchange rate,” Chidambaram said.
“The rupee has risen against a basket of six currencies by about 6%.”
Overseas investment has strengthened the rupee and stoked inflation, which reached a more than two-year high of 6.69% in January. Wholesale prices rose by 3.65% during the week ended 8 December from a year earlier, slower than the gain of 3.75% made in the previous week, the government had said on Thursday.
Chidambaram said he’s happy that inflation is? under control. The government succeeded in curbing inflation by capping retail prices of petrol and diesel to protect consumers from the increase in crude prices.
India, Asia’s third largest economy, has expanded at more than 9% since April 2005, making it the fastest after China among the world’s top 15 economies.
Prime Minister Manmohan Singh’s government wants to accelerate growth to a 10% pace by 2012.