Pledge gold, get dollars: Toyota India Vice Chairman

K.R. Balasubramanyam        Last Updated: July 16, 2013  | 19:54 IST

The rupee's slide has hurt the finances of many Indian manufacturers, especially auto makers which depend on component imports to a large extent. Shekar Viswanathan, Vice Chairman and Whole-time Director at Toyota Kirloskar Motor Pvt Ltd - the India unit of the Japanese auto giant - spoke with K.R. Balasubramanyam on the economic climate and what the government could possibly do to improve investor sentiment. Excerpts from an interview:

What do you think is the problem with the Indian economy?
India's short-term foreign currency debt, apart from oil prices, is playing havoc with the economy, undermining the value of the rupee against the US dollar.

How is that affecting manufacturers?
Businesses which import goods can manage if the rupee appreciates over a narrow band, say five per cent over a period of two to three years. More than the rise or fall of the rupee, what is affecting us is the extreme volatility in the rupee: from 46 to a dollar two years ago to 60 now. This is something we have not been able to deal with and is affecting our product planning.

How are businesses reacting to the situation?
Many companies and investors are either holding back or postponing their investments waiting for the rupee to reach the 'right level' against the US dollar. But no one has any clue as to which is the right level.
 
Will lower interest rates help revive sentiment?
Lower interest rates are good, but the RBI (Reserve Bank of India) can do precious little as long as the revenue deficit is not under control, the government does not curtail its borrowing, and inflation is high.
 
What measures would help?
Let the government trim its expenditure and reduce its borrowing, then automatically the RBI will have room to slash interest rates as more funds will be available to the private sector for investment. This will automatically cool prices of food articles and consumer goods. But some government expenditure cannot be curtailed, like defence expenditure, while some expenditure is populist. I also feel tax collections must be made more efficient through the use of technology and checking tax evasion instead of raising taxes as in the case of the excise duty hike for sport-utility vehicles.
 
Do you think the present climate is unprecedented?
The present situation, in my opinion, is no different from what India faced in 1991. The government must use Indian gold holdings and must look for ways to pledge part of it with international banks and bring in dollars. This will have a sobering effect on the rupee and improve investor sentiment. It is wrong to assume such a measure will hurt India anyway. Did the government's actions in 1991 in selling its gold weaken India in any way in later years? Tough situations call for tough measures.

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