The government on Friday said the rupee could touch the 50-mark to a dollar in the next four months on the back of strong inflow of foreign currency.
"If rupee further strengthens, which we hope it will, with the steps the government is taking, we expect it could even touch 50 in the next 2-3 months or four months," Department of Economic Affairs secretary Arvind Mayaram said.
The rupee on Friday rose to an over five-month high of 52.49 against the dollar on strong capital inflows and hopes of more policy reforms. The local currency ended the day at 52.85.
"Now there is a much better foreign exchange management in terms of flows on account of decision that the government has taken in the last 2-3 weeks. We expect higher FDI flows to come into the country. So the pressure on the rupee is decreasing to that extent," Mayaram said.
Earlier this month, the government has taken a slew of reform initiatives like opening up the multi-brand retail chains to foreign direct investment (FDI) and allowing foreign carriers to pick up stake in domestic airlines, besides liberalising FDI norms for the broadcasting sector.
Mayaram said the appreciation of rupee would help cutting down the subsidy bill and cool down inflation, which stood at 7.55 per cent in August.
"(If the rupee strengthen) our subsidy burden will go down even further," Mayaram said, adding that the positive impact of the hardening of rupee would be felt more on import of petroleum products. India imports about 80 per cent of its crude oil requirements.
"We expect inflation to come down because of that (rupee weakening) ... A one rupee change gives you about eight basis points of drop in inflation," Mayaram added.
Recently, Finance Minister P Chidambaram said the subsidy bill in the current financial year is expected to rise to 2.4 per cent of the GDP from 1.9 per cent estimated in the Budget.
Besides, the fiscal deficit has also touched about 66 per cent of the budget estimates or Rs 3.38 lakh crore in the April-August period. The government had budget to bring down the deficit to 5.1 per cent of the GDP in 2012-13, from 5.76 per cent in the previous fiscal.