Prime Minister Narendra Modi has convened a high-level meeting on Saturday to review the health of the economy and discuss measure to arrest free-fall of rupee and rising oil prices. The meeting is expected to discuss measures like asking the RBI to raise 30- billion dollar through NRI bond to strengthen the rupee. Ahead of the meeting, the PM held discussion with Finance Minister Arun Jaitley on Friday.
Besides the PM and Jaitley, Reserve Bank of India Governor Urjit Patel, NITI Aayog vice-chairman Rajiv Kumar, Prime Minister’s Economic Advisory Council (PMEAC) Chairman Bibek Debroy and Finance Secretary Hasmukh Adhia are expected to attend the Saturday meeting.
Interest rate hike and greater intervention by the RBI through selling of dollars are among other measures that could also come up for discussion.
In 1998, 2000 and 2013 when the rupee faced similar crisis, the RBI had raised dollar through issuance of NRI bond.
The meeting is also expected to take up concerns on rising fuel prices. However, experts feel that with latest data showing that OPEC has raised oil production and the global demand is likely to be subdued in the near future, the volatility in fuel prices could stabilise on its own.
Experts feel the Government should not take any populist measure like cutting down excise on petrol and diesel which will derail the fundamental of the economy. Every Rs 2 cut in price of petrol and diesel would lead to a revenue loss of around Rs 30,000 crore.
Experts feel the Government must ensure that the fiscal deficit target of 3.3 per cent of the GDP in FY19 is maintained to boost the sentiments of foreign investors and stop flight of capital from the country. Incidentally, foreign portfolio investors (FPIs) have withdrawn around $7 billion till August 31. This is a worrying signal since the FPI was net buyers of equity and debt last year.
Besides having an impact on current account deficit (CAD), the nose-diving rupee has made imports costlier and led to petrol and diesel prices skyrocketing to record highs. The CAD, which is the difference between inflow and outflow of foreign exchange, rose to $18 billion or 2.4 per cent of GDP in the April-June quarter on account widening trade deficit.
The Finance Ministry has ruled out any cut in taxes to ease the burden on consumers, saying it does not have the bandwidth to lose any revenue without developmental spending being cut. The Government can ill-afford this in an election year. Opposition parties led by the Congress have made spiraling fuel prices and plummeting rupee a political issue and questioned the efficacy of the Government’s economic policies. They have been demanding that the Centre cut excise duty and some of the States ruled by them, including Andhra Pradesh and West Bengal, have announced measures to cut local taxes.