Indian rupee can take care of itself, says CEA Anantha Nageswaran

CEA V Anantha Nageswaran (Illustration: Moneycontrol)

Indian authorities are not "defending" the rupee as it can take care of itself, Chief Economic Adviser V Anantha Nageswaran has said.

"I think India isn't defending the rupee. India is just making sure that the market forces and the economic fundamentals direct the rupee in a particular direction and making sure that it is happening smoothly and gradually," the government's top economist said on September 13 while speaking at the 15th Mindmine Summit.

"I don't think Indian fundamentals are such that we need to defend the rupee. The rupee can take care of itself," he added.

Nageswaran's comments come even as the rupee's exchange rate continues to face downward pressure and the Reserve Bank of India (RBI) deploys its foreign exchange reserves to reduce volatility.

The RBI has publicly stated it's stance that it does not target a particular exchange rate level and only intervenes in the foreign exchange market to contain volatility. However, the volatility in FX markets has been such during the last several months that the RBI's foreign exchange reserves had fallen to $553 billion as on September 2, as per latest data. This is the lowest level of reserves since October 9, 2020 and nearly $100 billion lower than the all-time high reached in the second half of 2021.

Commenting on growth, Nageswaran said although international agencies saw India's trend growth rate at 6 percent, he was far more optimistic and saw at least another 100 basis points of upside on account of the fact that India had "paid it's dues" in the previous decade.

"The banking sector and corporate sector were both repairing their balance sheets (in the last decade). That repair work is done. So both the banking system is willing to lend and the corporate sector is waiting to borrow and invest. It has just been held back the temporary uncertainties because of the war and the pandemic. The investment spending which we had experienced back in 2006-2012 is going to come back," Nageswaran said.

"I am thinking 6 percent as the very easily attainable growth rate. I am adding 0.5 percent coming from the capex boom. Another 0.5 percent will come from the digital public infrastructure we have created. We haven't fully understood the impact it has had on formalisation and access to finance, and therefore it's positive contribution to economic growth. And if in some years we have the global cycle operating in our favour, that export growth will give us an additional icing on the cake, which can take you to 7.5-8 percent," he added.

"I feel that our trend growth rate will easily be 7 percent per annum for the remainder of the decade and beyond."

The RBI has forecast that India's GDP will grow by 7.2 percent in FY23. However, most economists see a significant fall in growth starting next year due to expectations of a recession in advanced economies as well as the tightening of domestic monetary policy.