The Indian rupee hit a record low and shares slumped on Tuesday after parliament’s approval of a $20 billion plan to provide cheap grain to the poor renewed doubts about the government’s resolve to control spending ahead of elections due next year.
The alarm over India’s fiscal deficit eclipsed an announcement by Finance Minister P. Chidambaram that the government had approved infrastructure projects worth 1.83 trillion rupees ($28.38 billion), a step aimed at reviving economic growth and shoring up investor confidence.
Instead, the rupee plumbed new depths after Chidambaram spoke and his promise that the government will meet its fiscal deficit target also failed to turn sentiment.
“I have already said that 4.8 percent of GDP and the absolute number that was indicated in the budget is a red line. The red line will not be breached,” Chidambaram told a news conference. “I think we’ll simply have to be patient, be firm, do whatever is required to be done, and the rupee will find its appropriate level.”
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