We must not over-react to rupee depreciation: Kaushik Basu

Dr Basu said, “India’s economic situation does not look that pessimistic in Washington as in New Delhi because of too much self-criticism by Indians”

August 20, 2013 1:47 IST | India Infoline News Service
Pointing out that India's economic growth rate may fall further, World Bank Chief Economist Kaushik Basu suggested a “bit of liquidity infusion” for the betterment of the economy.

Dr Basu was speaking at JRD Tata Memorial in New Delhi on Monday. The seminar was organised by industry body Assocham.

According to Dr Basu, this liquidity infusion can come by restraining Government expenditure cuts for six-nine months.

Dr Basu said, “India’s economic situation does not look that pessimistic in Washington as in New Delhi because of too much self-criticism by Indians”. “Pessimism on India is greater within India than abroad”, added Mr. Basu.

Dr Basu said that India is in a better position now, on the level of forex reserves, economic growth rate or even inflation. At the same time, he cautioned that economic growth may not have bottomed out.

India was now among the top six growing countries in the world, he said further.
On the falling rupee, Basu said India must use foreign exchange reserves to curb the currency’s volatility (against the dollar).

Like Japan, “India also needs liquidity infusion for a short period”, Dr Basu said clarifying that the liquidity infusion suggested by him related to the government expenditure. As for the Reserve Bank, the situation is intricate.
To the rupee depreciation, he said as a country, “we must not over-react” even though the recent drop in rupee value was sudden and sharp.  He suggested that the strategic intervention by the RBI to calm the rupee volatility without elaborating the manner in which the central bank can go about this task. 

Dr. Basu said the RBI can use part of the reserves – about USD 280 billion to curb the turbulent times in the exchange rate but it should not be done to buck the trend in the long term. 

Referring to the tenure of Dr D Subbarao as Governor, Dr Basu was all praise for the outgoing RBI chief. He said the position of RBI Governor deserves “dignity, honour & autonomy, which Dr Subbarao upheld”.  “Dignity of RBI, autonomy is extremely important. During the tenure of Dr Subbarao it was upheld.” 

In the long term, he said the biggest problem about India related to governance and corruption, said Dr Basu. Only if small businesses are allowed to function without bureaucratic hassles, “you are going to unleash a huge energy” which can revitalize the economy. He said small things like easy visa issuance for medical tourists can make a big difference. About corruption, he said the punishment for the giver and taker of the bribe should be asymmetrical and the giver should be treated as a victim in the law.

Summing up state of global economy, Dr Basu, who was earlier, the Chief Economic Adviser in the Finance Ministry said the situation is very difficult and grim. The biggest problem is Eurozone which may once again go back to recession. China is slowing while Japan is doing better. The United States economy is showing signs of slow and steady growth but the recovery is quite slow. 

On Food Bill, he supported giving Constitutional rights to the citizens saying the mechanism needs to be made smart and efficient for delivery. He preferred direct subsidy transfer in the urban cities to make the system work better. 

About the quantitative easing in the US, Dr Basu said in the long run, it would work better for India and other economies. 
Earlier, ASSOCHAM Secretary General D S Rawat said Dr Basu joins the luminaries like Dr Manmohan Singh, APJ Abdul Kalam, P Chidambaram, Dr Subbarao and N R Narayanamurthy who have delivered the flagship JRD Tata Memorial Lecture series. Mr. Sandeep Jajodia Vice President, ASSOCHAM also spoke during the conference.

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