Indian rupee falls to new low but full-blown crisis not seen
Print Edition
India’s currency plunged to a new low yesterday even as the World Bank’s chief economist said the country’s problems were “overplayed.”
Kaushik Basu said India was not in danger of a full-blown economic crisis, despite mounting fears about Asia’s third-largest economy, which is struggling with a gaping current account deficit that has helped push the rupee to record lows.
“Growth may not have bottomed out. We have further to go (down), but the situation is not as bad as is being captured by the mood and captured in the headlines,” Basu said in New Delhi.
Basu, who was a top adviser in the Indian finance ministry until last September, said the situation was sharply different from 1991 when India had to seek a bailout from the International Monetary Fund in what was considered a national humiliation.
“India is nowhere near the 1991 crisis. The gloom is being overplayed,” he told a business audience. “In 1991, we had foreign exchange reserves for 13 days of imports, we now have enough for seven months.”
“There is no comparison. I don’t think we are anywhere near that situation. We are a much stronger economy than in 1991.”
The partially convertible rupee, Asia’s worst-performing major currency this year, fell to 63 to the US dollar in trade yesterday, past its previous low of 62.03 on Friday, on concerns about the slowing economy.
Nervousness rose over the currency as foreign investors pulled out cash.
Bond yields hit a five-year peak of 9.17 percent, reflecting falling investor appetite for Indian debt as worries about the economy and potential default mount.
Basu said India’s economy — even with 4.8 percent annual growth in the quarter to March — was among the world’s fastest-growing.
He urged people not to fall into a “spiral of pessimism.”
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