IMF spokesperson Gerry Rice said the current situation presents a challenge, obviously, to the government of India, but also an opportunity for the government to continue in its policy efforts on a variety of fronts.
"But maybe just stepping back on the situation in India, the combination of large fiscal and current account deficits, high and persistent inflation, sizable un hedged corporate foreign borrowing and reliance on portfolio inflows are longstanding vulnerabilities that have now been elevated as global liquidity conditions tighten, and this clearly has affected market confidence," he said.
The US India Business Council (USIBC) President Ron Somers stressed on taking steps to restore investors' confidence.
"Bold leadership that continues to open India's economy and which advances reforms will help staunch the rupees' slide," Somers said.
"Lifting FDI caps in Insurance should be the highest priority, while resisting protectionist measures - such as forced manufacturing and backsliding on Intellectual Property protection - is crucial. Demonstrating such leadership will go a long way towards restoring investor sentiment," he added.
Referring to the Food Security Bill, Somers also said that it is now essential to welcome organised retail into the country such that Multi National Corporations (MNC) may help achieve the Bill's efficient implementation and very purpose - to facilitate inclusive growth.
Former IMF chief economist Simon Johnson said that there is political pressure to keep the economy growing ahead of the 2014 elections.
"There is political pressure to keep the economy growing ahead of elections in early 2014. The rupee is able to depreciate without too much drama, and this by itself should, over time, help to reduce imports and increase exports. Weakening confidence in the Indian economy has been compounded by some policy confusion in recent months, which has further encouraged domestic residents to move funds out of the country, he said.
Johnson said that when a country like India faces crisis, for domestic reasons but also perhaps because of what is happening in the United States, capital tends to flow out of that country and toward safe havens like the United States.
According to reports, the rupee's steep decline is fuelling inflation and posing a threat to public finances as the cost of oil, fertiliser and other critical imports in rupee terms rises.
Chief economist at Credit Rating Information Services of India Limited (CRISIL) D.K Joshi said that everything depends on whether the rupee stays at these levels or it bounces back and if it stays at the current level, it will lead to a lot of trouble.
--ANI (Posted on 31-08-2013)