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Skilful management of rupee rise needed

NEW DELHI: Finance Ministry’s former Chief Economic Adviser Shankar Acharya wants more skilful management of rupee by the Reserve Bank of India.

Speaking at an interactive session at ‘India Economic Conclave’ organised by CNBC-TV18 here, Dr. Acharya said: “It [the rupee appreciation] was to my mind mismanagement of exchange rate [by the RBI]”. Commenting on the sharp rise of about 12-13 per cent against the greenback during 2007, he said: “I want more skilful management of rupee by the Reserve Bank.”

Dr. Acharya said that the RBI could have put in place a slew of instruments such as the cash reserve ratio (CRR) and calibrated sale of bonds to rein in appreciation of the rupee without affecting inflation. Comparing India with China, he said it “receives five times more foreign funds than India and has foreign exchange reserves of $1.5 trillion, yet it has not allowed its currency to appreciate”. Many other countries in Asia and West Asia also did not allow their currencies to appreciate, he said. Dr. Acharya, now Member, Board of Governors, Indian Council for Research on International Economic Relations (ICRIER), also sought to refute the argument that the Chief Economic Advisor in the Finance Ministry had no role in exchange rate management. “Chief Economic Advisors do have a role in this. They can always advise the Reserve Bank on management of exchange rate,” he said. Dr. Acharya ,who had a long stint as Chief Economic Advisor till the year 2000, said the rising rupee was one of the major factors that could put the country’s economic growth off track and stand in the way of the manufacturing sector achieving a growth of 10-12 per cent in future. The rupee exchange rate, he said, was managed better earlier in that it was kept within a band of “plus-minus five per cent”.

On the fiscal side, he felt that the country’s fiscal deficit might inch up in the days to come following the implementation of the Sixth Pay Commission’s recommendations as also owing to the rising subsidy bill and erosion in corporate profit margins.

In addition, the possible slowdown in the global economy would affect India as it would tell on the ability of companies, particularly in the field of information technology, to maintain high profit margins.

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