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Rupee will continue to be market-determined: Shaktikanta Das

Denying speculation that the government is considering devaluing the rupee, Economic Affairs Secretary Shaktikanta Das has said that the policy remains that the rupee would be a floating currency and that the government will not intervene to determine its level.

In an interview with CNBC-TV18, Das said there was no proposal from the Commerce Ministry to the Finance Ministry to try and let the rupee depreciate even as the ministry believes that the rupee has been relatively strong compared to peers on a trade-weighted basis.

CNBC-TV18 broke the story today, quoting sources, that the Commerce Ministry had mooted a proposal to consider letting the rupee fall in a bid to give exports a leg-up.

“The central bank will take a call on the rupee,” Das said. The Reserve Bank of India’s official view, too, is that while intervenes to keep volatility in the currency undercheck, it does not actively try to set a particular level.

In the interview, Das also spoke about a number of other issues, such as Budget reforms.

Below is the transcript of Shaktikanta Das’s interview to CNBC-TV18’s Latha Venkatesh.

Q: We got information from commerce ministry sources, not the minister that they are wanting to or they are in touch with the finance ministry to plan some kind of a devaluation or a depreciation of the rupee so as to help exporters. The charge being that the rupee is pretty overvalued compared to most of its competing export partners?

A: The rupee value is not an administered price, it is market determined. The market discovers the value of the rupee. That is the policy and this policy has been announced quite some time ago. There is no reverse movement with regards to our path of liberalisation and economic  reforms. So, there is no such proposal to have an official devaluation of the rupee.

Second thing is naturally the exporters and the commerce ministry would perhaps like to have a slightly depreciated rupee which is good for exporters. Now that is a point of view and in any case the requirement of exporters and the requirement of the other sectors which want a slightly depreciated rupee, these are factors which the central bank always keeps in its mind when they sort of as required they intervene from time to time in the market. So, they maintain a certain level.

So, there is no such plan to go for a devaluation of the rupee. Exporters naturally want a slightly depreciated rupee and that is a matter which the market will decide and that is a matter which taking into account all aspects of the economy the central bank that is the Reserve Bank of India (RBI), will take a call.

Q: Is the finance ministry of the view that the rupee is overvalued compared to several trading partners and therefore a depreciation at least is merited?

A: We have no such views. We are of the view that the value of the rupee, the market will determine its price and rupee will find its true level in the market. There are international factors also involved and the kind of inflows which are happening today and as you know the dollar inflows into Indian economy have been very robust in the past few months both FII as well as FDI inflows have been very strong. So, naturally that is also adding to the strength of the rupee. In the aftermath of Brexit also excepting 1 or 2 days the rupee has considerably strengthened and maintained its pre Brexit levels.

Q: Commerce ministry officials have not got in touch with you, is a discussion underway?    

A: There is no such proposal  at the moment.

Q: The argument that a strong rupee is one of the reasons why exports are falling, are you sympathetic to that views?

A: I cannot give a direct reply to that question. Decline is exports again, it is impacted by the fact that you have a global recession, you have a global slowdown, overall the global trade has contracted, so naturally the Indian exports also will go down. However this year in the last few months the exports are looking slightly better than what they looked about a year ago. So, therefore the decline in exports from India have been broadly moving in tandem with the contraction of the global trade.

Q: There was an earlier new report as well that the commerce ministry wants a group of people to determine the currency so that it doesn’t  get overvalued. Even that is not something which has reached your table?

A: There is no proposal at the moment to do any kind of a devaluation of the rupee.

Q: Is there a sympathy for the argument that the strong rupee is hurting. Therefore you could even tell the RBI to perhaps buy more dollars, that is possible?

A: No, I wouldn’t agree with that. Having accepted the principle that the market will determine the value of the rupee, there is no official view of the government or for that matter of the  finance ministry that the rupee is overvalued or undervalued. The market will determine the value of the rupee from time to time depending on so many factors.

Q: We got a very good inflation number but the other accompanying news has been that the monsoon has fallen short as of September 15 from that 106 percent that was expected. Now we are running short by 3-4 percent. Are there worries that this pace will not be maintained of falling inflation?

A: The monsoon has been very good throughout the country excepting parts of North East and perhaps some parts of Gujarat. Other than that rest of the country has received very good rainfall, although there are talks of  monsoon may withdraw in the coming weeks or so but let us see how it plays out in the remaining part of the monsoon.

I think so far as the cropping and the net area sown under all crops, so far as all those aspects are concerned I think the crop will be good this year, that is the general expectation.

The expectation is that also the rural purchasing power this year will be far better than last 2 years.

Q: So, governor has the elbow room to gift a rate cut in his maiden policy you think?

A: The rate of inflation and the interest rates,  there is a link between the two. Now the CPI inflation has come down. I am sure the RBI will take into account all the factors and take a considered decision.

Q: Will an monetary policy committee (MPC) already be in place before October 4?

A: I would think so. There are good possibilities that the MPC will be in place before the next monetary policy of the RBI.

Q: That will still mean that the RBI will have only two members because the deputy governor in-charge of monetary policy is yet to be appointed. So, will it be that Mr Gandhi will sit in on the MPC or will you be able to even appoint a deputy governor before that?

A: RBI has three members, governor is there, there is a deputy governor today who is in-charge of monetary policy and there is the other nominee representing the central banks. So, RBI has its 3 members.

Once the government appoints the three other members the MPC can have its meeting. There are good possibilities that it should happen shortly.

Q: The deputy governor’s appointment, does that happen anytime soon? Do you have a timeline?

A: There is a process to be followed. The vacancy has recently arisen. So, there is a process to be followed and it will be done.

Q: The other big process that will start is the Budget because now the date is definitely  advanced. What kind of a deadline are you all working with?

A: There are certain proposals which are under consideration of the government. We expect the government to take a decision very shortly. So, far as the Budget is concerned the finance minister has already announced in this year’s Budget speech about the merger of planned and non-planned. As you are aware the railway ministry as well as the Bibek Debroy Committee have recommended the merger of the railway Budget and there have been suggestions about advancing the date of the Budget. All these matters are under consideration of the government. So, as soon as the government takes a decision the necessary announcements will be made.

In any case finance ministry is always, we are prepared to deal with any advancement if the government decides so.

Q: There is one more element in the budget which perhaps the decision is awaited, the FRBM committee’s recommendations, when is that expected to come?

A: The FRBM committee has been tasked to give its recommendation before October 31 and our interaction with the FRBM committee, its members and the chairman they have assured that they will be submitting the report to government before October 31, so once that report comes so we will have to go through the report and their recommendation see to our endeavour to factor in the recommendations even in next year’s budget.

Q: There was a talk that it might be a range, a budget deficit range any indications from that committee whether they will give you deficit targets in the form of a range?

A: I will not be able to say that because it will form part of the recommendations of the committee. The range concept the finance minister had mentioned about it as one of the suggestions which he had received in the run up to the budget of this year, so as of now therefore the FRBM committee will have to wait for their recommendation.

Q: Dr Patel was in that committee as deputy governor, now he is governor, does he continue or will you be looking for another appointment?

A: The members of the committee were appointed in their individual capacity taking into account their knowledge and experience. Dr Urjit Patel was also included in the committee not so much as deputy governor of Reserve Bank, but because of his individual knowledge and experience in this particular field. Therefore, we have requested him to continue in the committee, because the committee deliberations are in very advance stage, so we have requested Dr Urjit Patel to continue in the committee and complete the process of deliberations and finalisation of recommendations.

Q: With the GST council coming in and indirect taxes being part of their jurisdiction, the budget manoeuvrability of the central government reduces, 40 percent of the revenue is indirect tax revenue, so you ability to achieve fiscal deficit targets are still intact?

A: I think we have been talking about the secrecy around the budget process. Our endeavour has been to make the budget process as transparent as possible. Now with GST coming in with the rates of taxation in indirect tax becoming more stable, the uncertainties that goes and the budget process becomes far more transparent and far more stable.

Therefore the finance bill so far as the indirect tax component is concerned particularly the service tax and central excise which gets subsumed into the GST that part will now become much simpler. Now, so far as government’s ability to raise revenues, we expect GST inherently GST will lead to better compliance and will lead to buoyancy of tax revenues. We would expect in the medium term the tax buoyancy to sort of show that the impact of the buoyancy to be felt and that take care of government’s revenue requirements.

Q: This year’s fiscal deficit or for that matter next year lowering the deficit won’t be a challenge, because you have only direct taxes to work with?

A: GST should bring in necessary buoyancy and the idea of having a revenue neutral rate is that you arrive at a rate which is moderate it should not be very high because if you have a high rate than that will be counterproductive. We expect a moderate rate at the same time the rate has to be broadly revenue neutral and government in any case is committed to the path of fiscal prudence and that will be adhered to.

Q: One of the recent steps of your government to pay 70 percent of dues to contractors; road, power contractors if the arbitration award is in their favour has done wonders, I mean it only an announcement any idea when the implementation start kicking in?

A: The decisions have been taken and now it is for the various public authorities like NHAI to implement it and they are already working on it. It should happen in a matter of weeks.

Q: Is there anything else in the government’s arsenal, because that was one of the most welcome steps by the infrastructure sector. Anything more in the arsenal that the government is thinking of?

A: See in the infrastructure and in the construction sector if you recall the FDI has been opened up. FDI restrictions have been also simplified then the real estate investment trust (REITs) that structure also has been simplified. The tax pass through have been provided. This was one more requirement which the construction sector and the infrastructure sector brought to the notice of the government and the government has acted upon it. Now we cannot say that this is the end of it the government I must say has been very proactive as and when there are requirements or as and when there is a certain need felt, what is to be appreciated is the speed with which government is able to consider that kind of suggestions and take a decision. Therefore, as and when there are suggestions which come up then definitely government will consider this.

Q: When is the GST council meeting and what is the chances that we will get a revenue neutral rate. Any timetable that you have in mind?

A: No, I can’t say when they will arrive at a conclusion.

Q: But the time given is before the budget isn’t it?

A: There is keenness on the part of both centre as well as the states. One sees a lot of keenness especially when we talk to the officers of the state governments. There is lot of keenness in both centre and in the state governments to bring in GST as quickly as possible. Lot of discussions have happened so let us how it proceeds.