Identifying rupee appreciation as a concern, the Economic Survey has asked the government to regularly assess the macro management strategy in the backdrop of huge capital inflows that has pushed up valuation of the local currency.
The Indian currency's value rose by 9.8 per cent against the US dollar till January 16 this fiscal, while the appreciation over the past 12 months on year-on-year basis (December 2007 over December 2006) was higher at 13.2 per cent, the pre-budget Survey tabled in Parliament said.
The appreciation of the rupee against other major currencies was much less than against the US dollar and it even depreciated marginally against the Euro till January 16 this fiscal.
Pointing out that short-term fund flows could continue to add to the total capital inflows in the medium-term, the Survey said it would be necessary to constantly review and revise the macro management strategy.
The appropriateness of the extent of rupee appreciation has come into sharp focus with the exporting community facing potential competitive loss, which was amplified by the fact that some of the competitor countries' currencies were depreciating against the US dollar, the Survey said.
Sectors such as textiles and handicrafts, which have low import intensity, have experienced lower export growth, while sectors with high import intensity like petroleum, oil and lubricants, have witnessed higher export growth.
Since appreciation has a stronger effect on export sectors with low import intensity, the government announced various relief measures amounting to over Rs 5,500 crore (Rs 55 billion) to mitigate the effect of appreciation of the rupee on select sectors.