00:00The rupee question against the dollar, because the rupee is in free fall and has reached its lowest today.
00:06It has gone to 90.80. Remember, this has been a steady 95.80.
00:12The rupee has been steadily free falling, as you can see with those numbers.
00:16And it has ended today at 95.71.
00:20To explain this, I'm joined now by a special guest.
00:26And with the rupee seemingly in free fall, I'm joined by a very special guest by the former Reserve Bank
00:32of India governor, D. Subarav joins me.
00:34Appreciate your joining us, sir.
00:38Indian rupee hitting an all-time low of 95.8 during intraday today.
00:43How bad and concerning is the situation in your view?
00:48This is a matter of concern, but I don't think there's any need to get alarmed about it.
00:53We should expect rupee depreciation in a situation like this.
00:58Oil prices have gone up from about $70 when the Iran conflict started to about $110 today.
01:06So our import volumes have gone up, import cost has gone up, add to that the subdued export demand
01:12and possibly weaker remittances from the Middle East economies should they be impacted further by the conflict.
01:19So there's going to be enormous pressure.
01:22There is already enormous pressure on the current account of the balance payments.
01:27That's putting strain on the rupee.
01:29It's fallen from 89 when the war started to 95 plus, as you said today.
01:35It is a matter of concern, but I don't think there's any need to get alarmed about it.
01:39But the fact is, Mr. Subharao, even before the conflict broke out in West Asia,
01:43the rupee was gradually depreciating external factors, presumably foreign institutional investor outflows,
01:50all of which are contributing in a way to the depreciation.
01:54Do you believe that this is, that the rupee should, as some believe, find its market value,
01:59that there should be no RBI intervention?
02:01If you were Reserve Bank of India governor, what would you recommend?
02:05So, you know, like you said, first of all, about the pressure on the rupee,
02:10added to the current pressure on the current account of the balance of payment,
02:15there had been pressure even before Iran was started because of capital outflows.
02:21So we're having a double money of pressure on the rupee from capital account before the Iran war,
02:28on top of that, for the pressure now.
02:31Now, there is a view that the RBI should continue to intervene, defend the rupee, defend the exchange rate at
02:38any cost.
02:39I don't believe that.
02:41If the fundamentals are dictating that the rupee should fall, I believe the RBI should let the rupee fall.
02:48Because a weaker rupee or a fall in the rupee is actually going to restrain demand for oil
02:56and it's going to mitigate the problem to some extent.
02:59So a weaker rupee is not necessarily a bad thing.
03:04Besides, it's going to improve our export competitiveness.
03:08RBI should certainly manage volatility in the exchange rate,
03:12make sure that the exchange rate movement is smooth,
03:15but should not stop the movement of the rupee.
03:18They should only engineer the trajectory of the moment.
03:21So I belong to the group which says that RBI should be minimalist in its intervention.
03:27May I ask you this?
03:29Because very interestingly, during your five-year tenure, 2008-13,
03:33ended in September 2013, it included the taper tantrum,
03:37the currency declined sharply against the dollar,
03:40Manmohan Singh's government was targeted at the time.
03:43How would you compare India's present economic fundamentals under the Modi government
03:47with that during 2013 when India was seen to be part of the fragile fight
03:52and Manmohan Singh copped a lot of flack?
03:55Well, today economic fundamentals are certainly stronger than they were in 2013.
04:002013, we had very high fiscal deficit.
04:03Today our fiscal deficit, at least at the central government level, is manageable.
04:07In fact, there's credibility to our fiscal management at the central government level.
04:12Our country account deficit back in 2013 was higher, as high as 4.2%, 4.3% of GDP.
04:19Today it is 1% last fiscal year, probably expanding to 2% this year.
04:26Our foreign exchange reserves were relatively modest.
04:29Today we have about $700 billion of foreign exchange reserves.
04:33The global situation, you know, was, you know, we were part of the fragile fight in 2013.
04:41Today every country is suffering.
04:43So I think today's situation is quite different from 2013.
04:47And we are in a better position to manage this crisis today than we were in 2013.
04:53You're saying that our position is much stronger today than it was in 2013, Mr. Subharao.
04:59But you've heard what the Prime Minister said a few days ago,
05:02where he spoke about the need for greater savings, fuel consumption to be reduced,
05:07reduce foreign travel, work from home, all of which has said a panic reaction,
05:13particularly in the markets, worried about how difficult the situation could get.
05:17Do you believe that the Prime Minister is in a way preparing the country for what lies ahead?
05:21Was that the right thing to do?
05:23I believe it was quite appropriate for the Prime Minister to call for austerity.
05:28I can also quite understand why the markets and the larger public are somewhat unnerved
05:35by the Prime Minister's urging for austerity,
05:38because they see this as a much deeper crisis than they believed.
05:43But in terms of real impact,
05:46I think the Prime Minister's urging is going to have only marginal impact.
05:50And like you said, I think the Prime Minister is probably preparing the ground for a rising price,
05:58because what the Prime Minister is saying, that we've cushioned to this extent,
06:02but it's a very uncertain situation.
06:04It's an open-ended situation.
06:05It's not possible for the government to continue to bear the cost of higher oil prices.
06:11Therefore, we may have to pass on some of the future burden to the consumers.
06:17I think that's the underlying message of the Prime Minister's call for austerity.
06:21But you see, the worry, therefore, is that we are entering a phase where inflation could rise,
06:26where fuel prices, of course, fuel that inflation rise,
06:30where you also have the possibility of growth slowing down,
06:33all of which leads one to presume that 2026-27 could be a difficult year.
06:39It's one thing to say our exports get more competitive with the falling rupee,
06:42but you need to improve your productivity in the first instance
06:46to ensure that your growth is sustainable.
06:49Well, certainly.
06:51You know, there is a big uncertain global situation.
06:55Every country is suffering.
06:57So, we've got to settle for lower growth, higher inflation, a weaker rupee.
07:03But in order to manage the situation,
07:05we've got to learn lessons from the current crisis
07:08and see what we can do for the future.
07:11Lots of things we have to do.
07:13But you mentioned about productivity improvement.
07:16That is certainly important, regardless of this crisis.
07:19We talk about improving our export competitiveness.
07:23We talk about making India.
07:26Underlying all of these aspirations is improving productivity.
07:30And that's very, very important.
07:32Let me ask you this in conclusion.
07:34You've been a civil servant yourself.
07:36And the general belief is that while citizens are being asked to be austere
07:42or at least go in for greater savings,
07:45government continues to be extravagant.
07:48The freebies are doled out every election.
07:50The carcades, the cavalcades continue in many parts of the country.
07:56Do you believe that part of the problem is the government doesn't know how to save and be austere?
08:01And you expect citizens to be austere?
08:04I certainly believe that the government should walk the talk,
08:09be more conscious about the need for fiscal consolidation,
08:13both at the central level and at the state level.
08:16There has been some credible fiscal consolidation at the central level,
08:21but at the state level, it's still a very, very big cause for concern.
08:25There should be some national consensus on these freebies that are being shoved before every election.
08:32So there is need to be this great need to tighten our bets,
08:38believe in austerity, implement austerity,
08:41because that's good for our long-term growth.
08:44So every politician, every political leader who is saying that,
08:50look, I'm giving you this freebie, I'm giving you 2,000 rupees to every woman in my state,
08:54actually, what is the underlying message?
08:56The underlying message is that, please, I cannot do anything for your long-term good.
09:02Take this and be done with it.
09:04And that is not acceptable.
09:05So I believe there's need for credible fiscal consolidation at the state and central level,
09:13and need for curbing political populism, and that's got to start at the very top.
09:18So let me ask you, in conclusion, your best case and worst case scenario, sir,
09:22as someone who's been in that hot seat in the RBI,
09:25what's your best case and worst case scenario of what happens in the next few months?
09:29Oh, the best case scenario is that during the Trump visit to China,
09:34there'll be some agreement between Xi and Trump,
09:37and the Iran war will come into a ceasefire next week.
09:41That's not going to end all the troubles,
09:42but that is certainly the best case scenario,
09:45because the oil price grants will persist,
09:49but at least it'll start easing.
09:51The worst case scenario is that this current situation will continue open-ended,
09:56with no certainty about what's going to happen.
10:00That's going to be very, very alarming for the world,
10:02especially for emerging economies,
10:04and especially for an aspirational economy like India.
10:08I'm going to leave it there, Mr. Subharao.
10:10I think you've given some sound advice,
10:12both to your colleagues in government,
10:15and of course your successors in the Reserve Bank of India.
10:18Appreciate you joining us.
10:20Just to ask you, what is your ideal?
10:22If I may ask you, I must ask, what is your ideal number?
10:26Is there a number you believe that the rupee will settle on against the dollar?
10:31I don't want to say that, because as I said, it's a very uncertain situation.
10:35See, when the rupee crosses 100, that's a psychological choke point.
10:39I believe the RBI, the government, the markets, the public will be conscious of that,
10:44just because 100 is a round number.
10:46But I think we should learn to cross that.
10:49But I'm not saying that it will certainly cross 100.
10:52It may not.
10:52But if it comes to that, we should take it in our stride
10:56and take it as part of the cost we have to pay for managing this crisis.
11:01Okay.
11:02Mr. Deavis Subharao, appreciate you joining me here on the show tonight.
11:06Thank you so much.
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