Finance Ministry on Monday said the rupee should ideally be at 58-60 to a dollar based on the intrinsic value of the domestic currency.
“There is something called intrinsic value of rupee. The intrinsic value of rupee comes from its purchasing power. The intrinsic value of rupee in Real Effective Exchange Rate (REER) term could be somewhere between 58-60,” he said.
The rupee, which touched an all time low of 68.86 to a dollar last month, is trading around 62.63 to a dollar today.The REER refers to the rate of currency in relation to the value of currencies of major trading partners.
The RBI and the Government have taken a host of steps to arrest the slide in value of domestic currency, including restrictions on import of gold, check on outward remittances by individuals and overseas investments by companies.
Mayaram further said the demand for bulk diesel is coming down and it would help the government save about USD one billion this fiscal.In order to rationalise fuel prices and bring down under recoveries of oil marketing companies, the government had earlier this year allowed OMCs to charge market rates from bulk users of diesel. Retail customers, however, continue to get diesel at subsidised rates.
Referring to the impact of tapering of monetary stimulus by the US Federal Reserve, Mayaram said the Government has enough ammunitions in its hand to deal with the situation.
“I do believe when tapering happens then there will be outflow of capital but the fact also remains that we have enough ammunitions in our hand... And therefore there is no room to be fearful of rupee taking a tanking,” he said.
The forex reserves of the country stands at $270 billion, he said, adding if the current trend continues there would be about $40 billion additional inflow of capital this fiscal year.
The US Federal Reserve last week surprised the markets by saying it will continue with its monthly $85 billion bond buying programme and wait for more evidence of growth recovery before thinking of unwinding the stimulus.
Expectations that the stimulus programme would be tapered had led to fears of capital outflows, causing the rupee to depreciate against the dollar and stocks to fall.
Mayaram said Foreign Direct Investment (FDI) this current fiscal is expected to be around $36 billion.In the first quarter, the net FDI flows into the country was at $9 billion, which is 70 per cent higher than FDI inflow in the first quarter of last fiscal.
On growth, Mayaram said, “We are not satisfied with 5 per cent growth rate. India’s potential rate of growth is 8 per cent. In the next two years, India will again start growing at 8 per cent.”
Economic growth in India in the April-June quarter fell to a four year low of 4.4 per cent. In 2012-13, economy grew at a decade’s low level of 5 per cent.
Mayaram also said despite volatility in the market, Government said it is confident of meeting the Rs 54,000 crore disinvestment target for 2013-14.
The Government has set a target of Rs 40,000 crore for its stake sale in public sector units (PSUs) and Rs 14,000 crore from selling its shares in private companies.
“We have two kinds of disinvestment. One is disinvestment of Government shares in PSUs and other is disinvestment of government shares in private companies.
“We believe that we will be able to meet that target of Rs 54,000 crore. It could be a little higher in the one or little lesser in the other,” Department of Economic Affairs (DEA) Secretary Arvind Mayaram told reporters.
Since July, domestic stock markets have been volatile with BSE benchmark Sensex touching lows of 17,905 in August. However, it recovered to touch 3-year high levels of 20,646 last week, only to lose momentum after the RBI unexpectedly hiked repo rate.
So far this fiscal, the government has raised only Rs 1,325 crore by divesting stake in entities Neyveli lignite Corporation (NlC), State Trading Corporation (STC), MMTC, and ITDC, all public sector undertakings.
Referring to the sale of government’s remaining stake in Hindustan Zinc and BAlCO, Mayaram said: “As far as our understanding goes there is no legal impediment in divestment of Hindustan Zinc and BAlCO.”