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ASSOCHAM Survey Suggests Ways to Support Rupee

May 14, 2012 2:07 AM   By Dilipp S Nag
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RAPAPORT... Internal country demand for investments and increased remittances by Indian expatriates are immediate solutions to problems facing the Indian economy in the form of a depreciating rupee against the dollar under the impact of capital outflows from the stock market, according to a poll by The Associated Chambers of Commerce and Industry of ‎India (ASSOCHAM).

The rupee has touched an all-time low against the dollar, INR 54,  and the pressure on the Indian currency increases each time there is a percentage point drop in the BSE Sensex. Outflows by the foreign institutional investors (FIIs) are not only the result of policy paralysis, but also due to risk aversion by the global investors into the equity markets.

This was the view of majority of India’s 50 well-known economists and bankers, polled in the ASSOCHAM survey in the second week of May. But once the internal demand is generated, the FIIs would return to the Indian markets, which will soon have attractive valuations again, said Rajkumar Dhoot, ASSOCHAM’s president.

The survey noted that the situation is being worsened by weak global demand for goods and resultant impact on the services industry. There is all-round pessimism amongst exporters, mainly from the IT majors who have given lower guidance for the financial year 2013. The U.S., a market Indian IT services, continues to signal very slow signs of recovery, ASSOCHAM said.

The situation in the Eurozone is alarming, too. In this region, merchandise exports would be more affected than services. In any case, both have impact on India’s current account deficit, which is moving dangerously high, in excess of 4 percent of the country’s gross domestic product, the survey revealed.

“Unfortunately, there are no immediate solutions to these problems, but the country needs answers in the short term. We cannot afford the confidence to further decline. We need fast measures like somehow increasing the dollar inflows so that the pressure on the rupee is halted,” Dhoot said.

He added that remittances from the non-resident Indians (NRIs) have to be mobilized like never before. While a handful of banks have increased interest rates on the NRI deposits, these seem to be piecemeal efforts, which need to be intensified, Dhoot said. At present, the NRI deposits are between $52 billion and $55 billion, but those need to be pushed up to an ambitious level of $75 billion to $80 billion.

NRI deposits in the country can be raised by at least $10 billion to $15 billion in the short term by taking confidence-building measures and offering attractive interest rates, the economists polled by the ASSOCHAM survey said.

The second solution offered by the experts participating in the poll was immediate efforts to revive internal demand. While moderating interest rates will send a strong signal and boost the consumer confidence, improving investment climate should be done without delay, they said.
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Tags: ASSOCHAM, demand, Dilipp S Nag, Dollar, Eurozone, India, indian, NRI, Rajkumar Dhoot, Rapaport, Remittances, Rupee, survey, US
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