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Is the Indian government doing enough to stem the rupee slide?

Jul 09, 2013 09:30 PM IST Business Business

Mumbai: The rupee has already breached the 60 level against the dollar and analysts say it will soon cross 62. Besides being a sad reflection of the state of our economy, a weak rupee will have a direct impact on common man.

For Indian students studying in the US the rupee now buys 11 per cent fewer US dollars than it did at the start of the year. It is the worst performing currency among emerging markets, falling 12 per cent in the last two months.

18-year-old Arnav Mody is finishing his college projects while on vacation from New York University, but the sliding rupee has put extra pressure on both him and his parents. "I'll have to cut down on eating out and any shopping or other expenses not directly related to my education. I am also planning to take up a job on campus because then I'll be earning in dollars and it will help," Mody said.

But has the government done enough to allay the concerns? "I think the government does what it can. There are ways which we can essentially make the country more efficient, but the government has tried to do a lot," said Jayant Manglik President of Religare Securities.

At the present rate of the Indian currency, there is a fear that the government may not be able to control sharp rise in inflation, fuel will also become more expensive and even RBI will give up on cutting interest rates. On macro side, the sharp depreciation in the currency will lower growth expectations and impact foreign investments.

Companies dependent on imported raw material will see a sharp fall in profits. Travelling and studying overseas too is bound to become dearer.

"In the short term, it could go to 62. Having said that, let us see if we see some chunky inflows coming in the coming days or weeks," said Agam Gupta, Standard Chartered Bank.

The government may keep repeating that rupee will correct itself, but analysts say the only way to strengthen the currency is to speed up clearance of stuck projects which can restore confidence in foreign institutional investors.