India should allow the rupee to depreciate gradually in the short term while ensuring that the country has adequate foreign exchange reserves for next year, chief economic adviser (CEA) V Anantha Nageswaran said on November 7.
“We should in the short run allow the rupee to depreciate gradually and we should use foreign exchange reserves judiciously, keeping the fire-power for 2023 as well,” Nageswaran said at an event organised by the Indian Chamber of Commerce. “We should augment foreign exchange reserves just to keep ourselves well prepared for any contingencies in 2023 because the global environment is very risky at the moment.”
The comments were a part of a list of strategies suggested by Nageswaran for India to mitigate global and domestic risks.
He said no restrictions on capital outflows were planned. “I don’t think it is on the cards,” he added.
Also Read: India’s economy to grow at 6.5-7% over medium term, says CEA Anantha Nageswaran
The Indian rupee has been falling to fresh record lows against the dollar as the greenback has gained on the back of sharp monetary tightening by the US Federal Reserve.
Still, the Indian rupee has been largely stable on a real effective exchange rate basis and has, in fact, performed better than several of its peers, the chief economic adviser said during the industry interaction.
India’s central bank, which does not target any particular level for the rupee but seeks to contain volatility in the exchange rate, has been selling dollars to cushion the fall, according to market participants.
The country’s foreign exchange reserves come off around $100 billion from their peak though a large part of the recent fall in the reserves has been attributed to valuation changes.
India’s worsening trade deficit is a cause for worry, the chief economic adviser said, but added that foreign direct investment flows remained strong.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
