Indian Business Magnate Believes Weakening Rupee Will Hurt “Whole Economy”

India needs to immediately use its foreign exchange reserves to arrest the rupee’s record plunge as the weakening currency has the potential to send the economy into a “nosedive,” billionaire Adi Godrej said.

“The whole economy will suffer dramatically — there will be huge inflation, which will lead to high interest costs and a whole vicious cycle will be created,” Godrej, chairman of the soaps-to-real estate Godrej group, said in a phone interview yesterday. “I’m very surprised that the government and the Reserve Bank of India are not intervening sufficiently to prevent the volatility.”

India’s rupee plummeted the most in two decades to a record yesterday as a surge in oil prices threatens to worsen a current account deficit and push the economy toward its biggest crisis since 1991. A continued drop in the rupee will stoke inflation, which is at a five-month high, in turn depressing consumer demand and raising costs for companies, according to Godrej.

The billionaire heads Godrej Consumer Products Ltd. (GCPL), which makes the Cinthol bath soap and Good Knight mosquito repellent, chemicals maker Godrej Industries Ltd. (GDSP) and a real estate developer. The Mumbai-based group, which started in 1897 as a maker of locks, has seven units with combined annual revenue of more than $3.3 billion, according to its website.

Godrej’s remarks come after Prime Minister Manmohan Singh’s government on Aug. 26 won approval from the lower house of parliament for a landmark bill that expands the world’s biggest food program. The plan involves spending about 1.25 trillion rupees ($18 billion) in subsidies each year, potentially worsening a fiscal gap.

Bloomberg

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