CII's Director General Chandrajit Banerjee while speaking on the volatility of the rupee said that the slump in the rupee impacts economic confidence and builds up inflationary pressure. “The Indian rupee has declined more than the troubled Euro and GBP currencies, dropping as much as 25.58% between June 30, 2011 and June 30, 2012. It fell by 9.11% during April 1 to 29 June this fiscal year. This impacts economic confidence, builds up inflationary pressures, and hits industry through rising import costs,” said Banerjee, in a statement.
He added that the high volatility in rupee has added to the complexity of business in the country. The government and the RBI need to tackle the underlying macro-economic problems that lie at the root of the fall in the rupee in order to provide some stability in business conditions. Ranking reasons for decline in the rupee, the main factors pointed out by the respondents were high current account deficit, policy inaction and high fiscal deficit.
Some of the suggestions put forward by the economists to tackle the decline in rupee were to review FDI policy in critical sectors, pay oil companies directly from reserves, issuance of dollar-denominated bonds, and further increase in FII limits in the Indian debt market.