Prime Minister Manmohan Singh is expected to tell captains of Indian industry at a meeting on Monday that he shares their concerns on the hardening of interest rates.
This flagging of interest rates by the Prime Minister will come a day before the Reserve Bank of India takes a call on rates in its first quarter review of monetary policy for 2013-14.
An agenda note prepared by the Prime Minister’s Office for distribution among the members of his Council on Trade and Industry has clubbed high interest rates with a raft of other factors as being responsible for inhibiting industrial growth.
Among the “issues for discussion” in the note is a suggestion that rather than hurting the economy, the falling rupee could in fact help it. “Depreciation of the rupee should boost exports and help reduce the current account deficit. Industry needs to take advantage of this,” the note says.
Among the members of the council are Deepak Parekh, Ratan Tata, Azim Premji and Mukesh Ambani.
Over the past two weeks, the RBI has deployed a variety of measures to block the slide of the rupee against the dollar and other currencies. All its measures have led to a rise in the interest rates for banks and consequently, for industry too. The PMO’s position seems to be at variance with the RBI line.
The note says that some depreciation of the rupee was necessary to make up for the inflation differential of the Indian economy with its trading partners. Overall, the depreciation would promote the IT sector and others with low import content.
“Industry should also use this as an opportunity to promote exports to nations that are growing relatively fast,” the note says.
The note explains that the government expects the current account deficit to improve to less than 4.4 per cent of GDP as a result of the full play of factors around the rupee. While the net impact of the depreciation is going to be 0.4 per cent, this will be counterbalanced by a “small tightening of imports and a similar rise in exports, offsetting the (decline)”.
“Overall then we expect the CAD to potentially moderate from 4.8 per cent of the GDP in FY’13 to 4.1-4.4 per cent of GDP, subject to gold imports and level of growth of GDP.”
In an interview given this week to The Indian Express Editor-in-Chief Shekhar Gupta for NDTV 24X7’s Walk the Talk programme, the acclaimed economist Arvind Panagariya described the sustained increase in interest rates by the RBI until the beginning of FY’13 as a “huge mistake”.