India struggles to arrest rupee fall as industrial output shrinks
Date
8/13/2013 2:05:33 AM
(MENAFN- The Peninsula) India pledged yesterday to curtail some imports to narrow a record current account deficit and arrest a sliding currency as a sharp contraction in industrial output underlined the weakness of Asia's third-largest economy.
Industrial output shrank by an unexpectedly large 2.2 percent in June from a year earlier, government data showed, outstripping market forecasts of a 1.2 percent drop.
"Weak domestic demand is weighing on manufacturing production," said Moody's economist Glenn Levine.
The figures came as the government strove to put the once red-hot Economy back on track, pledging new steps to narrow the gaping current account deficit -the broadest measure of trade -that has alarmed global ratings agencies and driven the rupee to record lows against the dollar.
The central bank has "taken a number of measures to increase short-end interest rates and this has contained the depreciation of the rupee to some extent", Finance Minister P Chidambaram told parliament.
But "we have to do more to contain the current account deficit, to reduce volatility in the currency market and to stabilise the rupee," he said.
The Reserve Bank of India, the central bank, has said it can only ease high interest rates to spur economic growth once the rupee steadies.
Chidambaram said the government would impose additional measures to reduce imports of gold, silver, oil and some non-essential goods. Gold and oil are the biggest contributors to the current account deficit.
He added the government would allow state-run firms to raise funds abroad through "quasi-sovereign bonds" to help finance the current account shortfall as well as make it easier for non-resident Indians to deposit money in India.
Currency inflows from the steps would reduce the current account deficit this year to $70 billion or 3.7 percent of gross domestic product, down from a record 4.8 percent last year, he said.
But Chidambaram's announcement failed to stem the fall in the currency which ended the day at Rs61.27 to the dollar, near its record closing low of Rs61.30 hit last week, as dealers complained about a lack of details.
Prime Minister Manmohan Singh's Congress-led government is struggling to engineer an economic rebound before elections due in the first half of 2014. But the industrial output data highlighted the depth of India's economic slump.
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