Wait for More Pain: Citi Expects USD - INR at 60
Indian government has another trouble now. The USD has been rising for past few days compared to Indian currency. Economy is also facing tough times and the estimates to growth have been lowered for Indian manufacturing sector.
Citigroup report counts four major deficits for India - fiscal, current account, liquidity and governance. UPA II is already under attack of opposition over the policies and rising inflation across the nation. With latest CitiGroup report, the troubles for government will increase only.
Finance Minister Pranab Mukherjee blamed Greece crisis for stock market declines and also partly on economic uncertainity. However, market experts believe that the reason for INR fall is mainly due to bleak economic outlook for India.
India is suffering from policy paralysis. The reforms have been over-delayed and divestment has not seen any advance as well. USD - INR touched 54.50 in today's trade. Steps taken by RBI can only help in short term and considering lower level of foreign exchange reserves with RBI, it will not be easy to control the rising USD.
Citi report has also indicated that India could face future downgrades in ratings. The GDP growth is expected to remain in 6-7% range. With rising USD, the oil import bill will increase for India. If the government passes the burden of higher oil prices to consumers, the inflation will go even higher.