India May Shield Exporters From Rupee, Finance Minister Says

Learned Friends View R invited on the news report post by Ravikumar.

Indian Finance Minister Palaniappan Chidambaram said the government may take steps to help exporters cope with a nine year-high exchange rate and a U.S. slowdown.

``If I have to help the exporters, I can only do so by fiscal steps,'' Chidambaram said in an interview yesterday in Washington. ``At the moment, the rupee is causing some discomfort. A slower U.S. economy will mean that demand for Indian goods may slow down.''

The minister's statement suggests India may offer more subsidized loans and cut taxes for exporters, similar to a package announced in July. Chidambaram said the rupee, Asia's best performer this year with an 11.4 percent gain, is now ``way above the comfort level.''

``There's a limit to the fiscal steps that the government can take,'' said Rajeev Malik, senior economist at JPMorgan Chase & Co. in Singapore. ``Chidambaram's comment appears to give a green light for market participants to be more bullish on the rupee.''

The rupee, which rose after Chidambaram's comments, erased gains on speculation the central bank sold the currency to stem its rally. The rupee fell as low as 39.735 against the dollar after rising to 39.62, the highest intraday level since April 17, 1998, according to data compiled by Bloomberg. It traded at 39.705 as of 11:30 a.m. in Mumbai.

The currency has climbed to the strongest in nine years this week as international capital flocks to the world's second- fastest growing major economy after China. While the gains may hurt exports, Chidambaram expressed confidence that economic growth will surpass 8.5 percent this year.

Exports `Hit'

He said it's ``difficult to estimate'' the impact of a stronger rupee on Indian exports or on the economy. Still, ``there'll be a hit on exports, there'll be a hit on jobs,'' Chidambaram said.

``What we're trying to do is assess the sectors which are likely to be hit both on the volume of exports and consequently the jobs, and try to see if we can find other ways to help them,'' he said.

India's central bank yesterday eased overseas investment and loan repayment rules for local companies, betting capital outflows will help the appreciating rupee retreat.

The move came after the government last month imposed curbs on companies seeking to borrow from abroad to slow capital inflows. The government is also periodically relaxing the conditions under which money can be taken out of the country.

``What we've done is to tweak the regulations,'' said Chidambaram, who took office in May 2004 and served as Commerce Minister in the 1990s.

`Comfort Zone'

``In terms of economic management we're in a comfort zone,'' including on the issue of inflation, Chidambaram said. While declining to comment on interest-rate policy, he noted the central bank has said ``we are not worried about inflation.''

The Reserve Bank of India ``will use the instruments that are available to any central banker, to remain in command over the money supply,'' Chidambaram said.

India's central bank aims to lessen volatility in the exchange rate without targeting the rupee's value, RBI deputy governor Rakesh Mohan said on Aug. 31.

The bank's foreign-exchange reserves have climbed this year, indicating the RBI may have sold rupees for dollars. India held $232.2 billion of reserves as of Sept. 14, up from $176.6 billion at the start of the year.

Interest Rates

Neither the finance ministry nor the central bank ``take a view on the rupee,'' as long as movements up or down are ``orderly,'' Chidambaram said, adding that India has a market- determined exchange rate.

On July 12, India cut interest rates and increased the tax refund limit for small and medium exporters to cushion them from a surging currency. The package cost $320 million to the finance ministry, which is seeking to trim subsidies and cut the budget deficit to 3 percent of gross domestic product by 2009 from 3.7 percent of GDP currently.

Foreign investors are buying shares and building factories in India to take advantage of the nation's growth. The benchmark stock index has gained 22 percent in dollar terms this year as overseas funds bought a record net $10.7 billion of stocks.

Chidambaram, 62, was in Washington yesterday for a meeting with Treasury Secretary Henry Paulson, who he said was ``upbeat'' about U.S. economic prospects. Paulson said American growth will probably exceed the International Monetary Fund's estimate of a 2 percent rate for 2007, according to Chidambaram.

Subprime Crisis

The Indian finance chief also said the U.S. subprime crisis will have only a limited impact on the South Asian economy. Chidambaram said Paulson will visit India next month, in part to discuss plans to increase investment in infrastructure.

Chidambaram acknowledged that India needs to press further in overhauling its economy and that China may continue to surpass the country in terms of growth rates. ``I am a realist,'' he said, noting that India's democratic system means policy makers must compromise as they seek to implement changes.