Rupee Recovery Boosts Economy

A recovery in the rupee is giving India’s Finance Minister P. Chidambaram rare relief in his battle against a threatened credit rating downgrade to junk status by reducing pressure on the government’s subsidy bill.

Still, the minister can only meet his fiscal deficit target of 4.8 percent of GDP by rolling over a substantial amount of subsidy spending into next year’s budget and by finding big savings elsewhere, two senior finance ministry officials said.

But a 10 percent rise in the rupee – which slumped to a record low late in August – means Chidambaram can at least reduce the amount of subsidy spending that gets pushed into next year’s budget to $12 billion from a previous estimate of $15 billion, these officials said.

Other budget headaches mean he will have to find about $8 billion in savings from budgeted spending plans to meet the deficit target, they said.

The sources, who have direct knowledge of the budget issues or have been briefed on them, declined to be identified because the revised budget numbers are not yet public.

“Chidambaram wants to put the house in order before the 2014 election campaign kicks off and the U.S. Federal Reserve begins cutting its monetary stimulus,” said one of the officials.

via Reuters

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