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Saturday, August 24, 2013

Indian Rupee and Deficit

The continuing depreciation of the rupee and widening external deficit seems to have forced the finance minister and the reserve bank of india to wake up to the dangers confronting the India economy.
For developing country like India,  running high levels of external deficit inevitably leads to dwindling confidence in their currencies and capital flight.  Over the past two years the rupee which wad trading at around Rs 45 per dollar till August 2011, fell to Rs 55 per dollar by August 2012 and has further slid to Rs 64 per dollar in August 2013.
As per the international monetary funds projection India will need over $266 billion externalfinancing in 2013 to pay for its current account ddeficit and repay past debt.
What FM needs to do is :
Utilize the entire policy space available for import tariff hikes on non eseential commodities .
Impose strong and effective controls on the inflows and outflows of capital


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