With Indian rupee again crossing the 65-mark against the US, Finance Minister P Chidambaram said the currency is undervalued and hoped it will find its appropriate level.
The rupee on Tuesday weakened further past 66-to-a-dollar mark in the morning trade.
Chidambaram said during Question Hour in Rajya Sabha that the rupee has overshot its true value but expressed confidence that it will find its appropriate level.
"There are not just external factors, there are also domestic factors. We recognise that there are domestic factors. One of the domestic factors is that we allowed the fiscal deficit to be breached and we allowed current account deficit to swell because of certain decisions that we took during the period 2009 to 2011," he said.
This was the period when government announced stimulus to ward off impact of collapse of western economies.
"It brought us growth, it stabilised the economy, we swayed off the very serious consequences of the 2008 collapse of the US economy. But it cost us in terms of fiscal deficit and current account deficit," Chidambaram said.
The government, he said, had steps to check fiscal deficit and is now on path of fiscal consolidation.
The Finance Minister said the exchange rate was remarkably stable between August 2012 and May 2013 but rupee has come under pressure since May 22.
"Every emerging market is challenged today. India is also challenged and the impact is also felt on the equity market as well as on the currency market," Chidambaram said. "The rupee has overshot is true level, it is undervalued ... We have to be patient, be firm, do whatever is required to be done and rupee will find its appropriate level."
The Indian currency has lost over 16 per cent since the beginning of the year while the equity market barometer Sensex has fallen over 8 per cent, or more than 1,500 points, in the last one month.
Chidambaram further said the fiscal deficit would be contained at 4.8 per cent of the GDP even after doling out subsidies for the implementation of the Food Security Bill.
"(Fiscal deficit of) 4.8 per cent of GDP and the absolute number indicated in the Budget is a red line and the red line will not be breached ... We have provided enough money for the cost of the food security programme for the remainder of the current fiscal. As the roll out takes place in the states, money will be provided. We think that after providing for the Food Bill, we will still remain in the limit we have set for ourselves in the Budget papers," he said.
The total food subsidy budgeted in the current fiscal is Rs 90,000 crore, of which Rs 10,000 crore is towards implementation of the Food Security Bill.
The bill which was passed by the Parliament on Monday will guarantee 5 kg of rice, wheat and coarse cereals per month per person at a fixed price of Rs 3, 2, 1, respectively.
Noting that high inflation and current account deficit was a cause of concern for investors, Chidambaram said the government has the conviction to contain fiscal deficit but needs to communicate its policies on CAD and inflation more effectively. He said steps are being taken to unblock stalled projects both in infrastructure sector and manufacturing.
"Once the investment cycle picks up, manufacturing picks up, I am sure it will have positive impact on the economy and in particular the current account deficit," he said.
On challenges facing the economy, he said, inflation, sluggish export growth in first three months and gold imports posed challenge.
With inputs from PTI