NEW DELHI: Finance Minister Manmohan Singh last week said in the Rajya Sabha that the value of the rupee was now “much more realistic” after its erosion in relation to the dollar, sparking off a protest walkout by the Opposition groups from the House.

Opposition members staged the walkout expressing their dissatisfaction with the reply given by Dr. Manmohan Singh to their clarifications during a Calling Attention motion on the fall in the value of the rupee and its impact on the country’s economy.

Earlier, Mr. Manmohan singh asserted that the exchange rate was much more realistic at the present juncture, and economic reforms were moving in the “right direction.”

In his statement, the Finance Minister said: ”All over the world, countries have shifted away from the older system of maintaining fixed exchange rates to more flexible systems in which the exchange rate is not rigidly fixed but moves from day to day reflecting market conditions, subject to interventions by the central monetary authority to maintain orderly market conditions.”

He also said that the “Overall direction of the movement of the: rate is consistent with the long objective of a viable balance of payments based on strong Competitive ness of our exports.”

Mr. Singh said the reduction of capital in flaw and the widening of the current account deficit had ended the earlier period of surplus dollar avail ability, and, therefore, the operation of normal supply and demand conditions in the foreign exchange markets gave rise to expectations of a depreciation of the rate.

Thus, he said, the decline in the value of the rupee against the dollar was “a response to these expectations, though the extent of fluctuations was accentuated by speculative forces.

However, he added, one of the “fundamental factors” which influenced the movement of the exchange rate after the middle of this year was that “our competitiveness in international markets was significantly eroded by ‘our rate of inflation being higher than the rates of inflation in our major trading partners.”

Article extracted from this publication >> December 15, 1995