Virendra Pandit
New Delhi: The Indian rupee, which had plummeted on July 19 to an all-time low at 80.6 per US dollar, hit a one-month high on Tuesday.
It traded below 79 against the dollar because of a weakness in the greenback globally and a slide in crude oil prices, bolstering the appetite for emerging market currencies. On Tuesday, at 11.45 AM, the INR traded at 78.6 per dollar, compared to 79.03 at the previous close on Monday.
Reports that the US Federal was slowing down the pace of its rate hikes have led to a significant drop in the global strength of the dollar.
The rupee also got a muscle because of the investors’ sentiment and confidence after Finance Minister Nirmala Sitharaman’s Monday Parliament assertion that India is nowhere near a recession or stagflation as the government is making all efforts to bring down retail inflation below 7 percent.
A slower pace of US rate hikes and a softer dollar increase the appeal of emerging market assets for overseas investors. Recently, the rapid pace of rate hikes by the US Fed so far in 2022 had resulted in a huge exodus of foreign funds from Indian equities, exerting pressure on the INR.
With global markets turning optimistic about a less aggressive pace of US rate hikes, the rupee recovered much ground after suffering a bout of heightened volatility last month.
On July 19, the INR had weakened to a lifetime low of 80.06 per US dollar. So far, in 2022, it has shed around 5.4 percent versus the dollar.
Sitharaman said in the Lok Sabha the government had taken several measures to make raw material prices cheaper and reduce inflation of food items.
“There is no question of India getting into recession or stagflation even though the US may have entered into an unofficial recession. Even as international agencies like the World Bank and the International Monetary Fund (IMF) have downgraded growth rates of economies, each time India has remained as the fastest-growing economy,” she said.
“A Bloomberg survey also recently said there is zero probability of India slipping into a recession. Our people have gone through the pandemic, global value chains have hit us, but despite the various steps taken by the government and the Reserve Bank of India, we remain much better than most countries,” she added.
Sitharaman said when nearly 4,000 Chinese banks are reportedly on the verge of bankruptcy, the gross non-performing assets (NPAs) of Indian commercial banks declined to a six-year low of 5.9 percent for FY22.
“While many major economies have triple-digit debt-to-GDP ratios, the Central government’s debt-to-GDP ratio declined to 56.29 percent of GDP in FY22 from the revised estimate of 59.9 percent for the same year. According to the IMF, India’s general government (centre+states) debt stood at 86.9 percent of GDP in FY22,” she said.
Insisting that India’s economy is showing very positive signs and its fundamentals remain strong, Sitharaman said GST collection in July was the second-highest ever at Rs 1.49 trillion, remaining above Rs 1.4 trillion for the fifth consecutive month.
“PMI manufacturing is at an eight-month high at 56.4 with the strengthening of output and new orders, remaining above 50 (the threshold for expansion) for the 13th consecutive month,” she added.
Comparing the economic situation during the 2013 taper tantrum when India was considered among the fragile five economies, Sitharaman said the NDA government had kept inflation under control. “We are trying to bring down inflation below 7 percent,” she added.
About the GST compensation cess, she said all compensation cess to states had been paid until May 2022. “Out of our budgetary provision of Rs 1.2 trillion for FY23, Rs 87,000 crore has already been paid to states, while Rs 14,000 crore is being paid for back-to-back loans. GST compensation is pending only for June because we have not received certificates from the Accountants-General of some states. We will clear it as soon as we receive those certificates,” she added.