The government should take advantage of the current rupee depreciation by increasing India's competitiveness internationally, said Indranil Pan, Chief Economist, Kotak Mahindra Bank, adding for this there has to be a change in the way the economic momentum of the country is garnered.
"The change the has to come in the way we are looking at the way we garner our economic momentum going forward, away from purely a service-oriented growth strategy to also a manufacturing sector-oriented growth strategy," he told Firstpost in an interview.
Rather than being fully reliant on the services sector, the government should also look at growing the manufacturing sector because it is this sector which can employ a much larger work force than the services sector.
"As the manufacturing sector grows, that will also help in the process of exports," he said. This also means that efforts have to be taken to increase the productivity, which will help decrease the imports and increase the exports.
"It would be sort of a gradual attempt through the manufacturing policies to close down the trade gap, rather than only looking at the capital flows to finance a large trade gap," he said.
He said no short-term steps will help the country in the present situation.
In its bid to address an over 10 percent depreciation in the rupee, the government has devised steps that are largely aimed at increasing foreign capital flows to various domestic sectors. It had several times increased the foreign institutional investors' investment limit in debt over the last few months. Finance Minister P Chidambaram has conducted roadshows in various countries to attract foreign investors into the country.
On gold imports, which have declined 80 percent in June after the government and the RBI took steps to that effect, Pan said one needs to realise that the fall is on a high base in April and May. However, he expects the gold imports in tonnage terms to be down this financial year and sees a $7-9 billion impact on the overall current account deficit.
He cautioned that since the fall in dollar price of gold was also linked to the QE withdrawal, any deferment of the US QE strategy or reduction in the quantum of the withdrawal may actually result in bounce back in gold imports.
The recent reform measures announced by the government will definitely have a positive impact in the longer term. But the impact in the shorter term can be analysed only by fully understanding the present global situation, he said.
In terms of the capital flows, whether through debt or through FDI route, he doesn't see an immediate impact as the growth dimension for the economy has changed.
However, the bank has not yet changed its forecast for GDP growth this year. "We are still a relatively better growing economy than rest of the world," he said. It has also not changed its estimates for the government fiscals but sees the RBI on an extended pause.
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Updated Date: Dec 20, 2014 20:44:19 IST