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Finance minister P. Chidambaram. Photo: Hindustan Times (Hindustan Times)
Finance minister P. Chidambaram. Photo: Hindustan Times
(Hindustan Times)

Government targeting a level for rupee: Chidambaram

Finance minister Chidambaram says RBI decisions will moderate inflation and contain high current account deficit

Jaipur/New Delhi: Dismissing fears that the Reserve Bank of India (RBI) decisions on Monday night could lead to tightening of interest rates, finance minister P. Chidambaram said on Tuesday that the government was targeting a “level" for the fluctuating rupee.

He does not expect banks to increase their lending rates in the aftermath of RBI’s decisions which he said were taken to arrest excessive speculation and volatility in the forex market.

Chidambaram also said that steps taken and those to be taken will moderate inflation and contain the high current account deficit.

“These measures (RBI decisions) are intended to quell excessive speculative activity in the foreign exchange market and to stabilize the rupee. I believe that these measures are for short term and certainly should not be interpreted as a prelude or precursor to some kind of tightening of policy rates," Chidambaram said.

India’s current account will decline in the ongoing fiscal year from the high levels of 2012-13, Chidambaram said. He assured investors the deficit will be fully financed by capital flows.

He added that the country’s gross domestic product (GDP) should grow at more than 6% in the year ending 31 March and at 7% in the next fiscal year.

India’s current account deficit reached an alarming 4.8% of GDP in 2012-13, raising concerns about the country’s ability to finance the huge deficit without drawing down on the foreign exchange reserves.

Though the government and the central bank have taken a number of steps to discourage imports of unproductive items such as gold, they haven’t been able to make a dent on the import bill.

“I am confident that with some stern measures, India will contain this year’s current account deficit below that of last year and finance it without running down on the reserves," Chidambaram told delegates at a conference organised by the Indian private equity and venture capital association.

The minister said, based on his interactions with foreign investors, that patient capital like sovereign wealth funds and pension funds continue to repose faith in the Indian economy.

The minister also said that official amendments to the Direct Taxes Code Bill will be introduced towards the end of the monsoon session of Parliament.

The Direct Taxes Code Bill was introduced in Lok Sabha in 2010 and the standing committee on finance has given a report after its scrutiny.

Chidambaram also ruled out a complete ban on gold imports and appealed to the people to moderate their purchases of the precious metal which is costing the nation $50 billion in foreign exchange.

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