Indian economy is not in a free fall. Yes, there has been a slowdown, but this was something that was building up for a while. After the massive expansion during 2010-11, things have started to taper.
The currency is a different matter. We have been running a sizeable current account deficit (CAD) for over two years now. But the rupee was extremely stable due to foreign flows, which were prompted by the relative strength of the Indian economy.
But you can’t run a large CAD for an extended period of time without it catching up with you. If you really look at it, over the last two-and-a-half years, the rupee should have been gradually depreciated because of high CAD, and that got prevented by flows. The moment flows got reversed, all the accumulated pressure comes to bear at a single point of time.
So, in the last two months, you have seen this crash in the rupee value because the Indian currency was overvalued.
Can the rupee hit a century against the dollar? No, it is about expectations. If people have expectations that the rupee is going to slide further, they will hold back investments. So, the foreign investor is not going to come in.
The moment the expectation comes that the rupee has slid far enough and it is going to start bouncing back, the flow starts coming in and the rupee goes up again, though at what level it is going to happen is difficult to say. Plus, it is also affected by what happens elsewhere in the world. But my sense of it is that we have probably seen the worst of it.
(As told to Neeraj Thakur)
The writer is chairman, National Statistical Commission.