Indian rupee must fall more to save exports, prevent China dumping: SBI

As the Indian rupee touched a new 2-year low, State Bank chairperson Arundhati Bhattacharya today said it must fall further to help domestic exporters.

“It (further fall in the rupee) is required, otherwise exports will become absolutely unviable. It is important to maintain parity. It can be achieved only if the rupee is allowed to depreciate further,” Bhattacharya told PTI when asked about the impact of the yuan devaluation on the country.

The rupee today fell by 36 paise, or 0.54 per cent, to close at 66.82 against the US dollar.

The RBI officially does not enter the forex market to set a price for the rupee but intervenes only when there is excess volatility in the market.

The last time the country devalued the rupee was in early July 1991, following a balance of payment crisis and the country sought a USD 2.2 billion bailout from the IMF as forex cover dipped to just three weeks or about USD 500 million.

Following this, the rupee was devalued twice in a week to the tune of around 20 per cent. The first official devaluation took place in 1966.

Since China officially paired down the official value of the yuan in July by close to 5 per cent and since then allowed it to fall further in the market following a massive route in the stock market which has lost more than half of its value since June, the rupee and the domestic stock markets have been under stress.

Mirroring the continuing woes in Chinese market, the Sensex sunk to 15-month low today to close below 25,000-mark, shedding over 306 points. The main index has lost all its gains in the year so far.

The markets are also in a bear grip as the US Federal Reserve is yet to speak its mind on whether the world’s most powerful central bank will increase its historically low rates in September or will wait till December.

Noting that the rupee fall has been mainly against the US dollar only, the SBI chief said the rupee has been doing well compared to many other currencies and is still trading higher than its actual REER (real effective exchange rate) value against many of its global peers.

Admitting that there could be short-term pains if the rupee falls further, she said the short-term difficulties will arise for those exporting raw materials like iron ore and cotton yarn to China.Bhattacharya pointed out that if the rupee remains firm, then we will have to put up with lots of cheap imports from China in the longer run.

“How will it impact and how will it pan out, we are yet to see. In the long run, there are cheap items like iron coming in. The world is so connected so it will have its own impact,” Bhattacharya said.

Already, domestic metals stocks have been battered as the economy of China, the largest consumer of metals, is witnessing slowing growth.

Today, Beijing officially revised down its 2014 GDP growth by a notch to 7.3 per cent from 7.4 per cent.

Every macro data coming in from China since early this year has been disappointing and the official growth estimate for this year is pegged under 7 per cent.

When asked about the outcome of the first high-powered committee on making Mumbai an international finance centre, Bhattacharya said the first issue is developing the required infrastructure for the same.

“There are a lot of requirements like infrastructure, not only physical but also otherwise. Infrastructure is a necessity. Space is a necessity and so is safety. Over and above, we have challenges that the rupee is not fully convertible so how do we get past that and which kind of business that we can do,” said Bhattacharya, who is co-chairing a panel in IFC along with Anshu Jain, ex-CEO Deutsche Bank.

On SBI’s plans for GIFT City, which is the country’s first IFC, she said the bank is planning to shift its offshore banking unit here to GIFT City.

“We have already taken over some land over there. We are looking at plans of putting up a building over there. We have a local head office in Ahmedabad which can be shifted close to GIFT City,” she said.

She further said though the bank used to have an offshore banking unit at Seepz in Mumbai, the rules are such that they are not viable any longer and we are planning to shift this facility to Ahmedabad.

“We would like to see the rules over GIFT City before we take a call for shifting our offshore operations to that place,” she added.

When asked about credit growth, she said “pick up is happening, but it is very slow. We are still in the second quarter. Let’s see if it picks up in the remaining quarters.”