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September 24, 2007 15:07 IST
Indian government asked companies on Monday to increase efficiency and cut costs to remain export competitive in the wake of strengthening of the rupee against other currencies.
"China calibrates exchange rates, but we've left it to be market determined. I really don't think government should be intervening... we did away with (this practice) as part of reforms," Commerce and Industry Minister Kamal Nath said in New York.
"I know the industry will be pained, but it needs to look for increasing efficiency and cost effectiveness," he said replying to a question by an Indian American on what the government was doing to protect IT firms from rupee rise shock.
The Indian currency has risen nearly 11 per cent against the dollar in 2007 and about 14 per cent in the past one year. The country's central bank has not intervened much as this makes imports cheaper, helping it control inflation in the world's second-fastest growing major economy.
However, the appreciating rupee has also hurt exporters, particularly software companies, which derive more than half of their revenue from the US. Besides, the government is aiming at merchandise exports of $160 billion in 2007-08, but the target may be scaled down if the rupee continues to harden.
Nath said IT companies have been enjoying tax concessions for too long, which has led to a disconnect between the IT sector and rural India.
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