New Delhi: Chief economic adviser V Anantha Nageswaran on Monday said elevated manufacturing is key to the long-term strength of the rupee. He also said the budget has announced a raft of steps to spur factory output.The increase in the Securities Transaction Tax on derivatives in the budget, he said, is aimed at protecting household savings from highly-speculative trading and not at enhancing government revenue.The CEA underlined that manufacturing prowess of a country influences its currency strength more than services.Over a multi-decade horizon, countries-including Germany, Japan, South Korea, Singapore and even China-that have had a strong manufacturing base have witnessed their currencies retain their strength, Nageswaran said. Conversely, countries that have lost their manufacturing mojo have seen their currencies weaken against the dollar, he added.
“Even if you are good in services sector surpluses, it doesn’t really give such a boost to currency valuations as manufacturing does,” he added.
Robust exports of manufactured goods and surpluses lead to meaningful and sustained reduction in the cost of capital, he suggested.He said the budget has to be seen as consolidating the gains of those big bang reforms that have been taking place to ensure that the right macro atmosphere, stability and fiscal prudence support structural reforms that are undertaken outside the budget.”And that is why this budget scores well, because it is a tidy, no-frills document, and deals with the nuts and bolts of structural transformation,” he said. “It plays a patient waiting game, and it is meant for the long term.”
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