Rupee’s fall is not a reflection of fundamentals of the Indian economy: HDFC’s Deepak Parekh

The rupee depreciated about 10% this year as the dollar gained strength against all major currencies, triggering the risks of large capital outflows from the emerging economies which can have a destabilising effect on trade and finance.

The rupee closed Tuesday at 82.73 against the dollar as compared with the 73.8 level in early January.

“We have never seen a free fall of the rupee and the present currency depreciation is not a reflection of a change in the fundamentals of the Indian economy,” Parekh said Tuesday at an event organised by the Indian Chamber of Commerce in Kolkata.

India’s forex reserves shrunk to $528 billion as compared with its peak of $642 billion seen in September last year. The reserves can cover nine months of imports against 15 months of imports at the peak level.

“Fortunately, the present situation does not warrant a warning alarm,” he said.

The Japanese yen has depreciated 23% against the dollar this year, while the pound depreciated by 16% and the Chinese Yuan by 15%.

“Whilst the US’s single biggest challenge is inflation, for the rest of the world, the challenge is double. First is tackling high inflation and second is the dollar strength,” Parekh said.

He however expressed optimism for India. “GDP growth for FY22 may be lower than 7%, but that is no reason for disappointment. What is important to note is the inherent resilience that is now embedded in the Indian economy.” he said, adding that India Inc’s balance sheets are now much stronger than what they were in the pre-pandemic era.

First, India needs more savers. The gap between deposit and credit growth has widened sharply with year-on-year deposit growth lagging at 9%. Long-term savers are needed for long-term investments.

Second, he said that the country needs large amounts of long-term patient capital for infrastructure projects. “Unfortunately, India has lost some large construction companies because they slipped into insolvency,” he said, adding:

“we will also need to strengthen our legal frameworks to ensure that payment dues are honoured in time and disputes and arbitrations are settled in a speedier manner.”