The Indian rupee slumped 16 paise against the US dollar to trade at a life-time low of 71.37 in early trade on Tuesday.

Jahangir Aziz, head of EM Asia Economic Research at JP Morgan, spoke to CNBC-TV18 about the rupee slide.

“There are internal dynamics in India and what is happening on external front. If you look at what was happening in the external front from April to sometime around of July, there was dollar tightening, global financial conditions tightening and emerging markets including India all reacted to that by letting their currencies depreciate quite a bit, do some sort of FX intervention but hardly any interest rate hikes," said Aziz.

Also Read: There is no other option to cut current account deficit but by reducing growth, says Jahangir Aziz of JP Morgan

“Emerging market countries and particularly emerging market countries with current account deficits now are pretty much behind the curve as far as where the interest rate should be,” he added.

Aziz believes that the way growth is financed in India is a problem. He said, “If you look at how growth is being financed, this year as compared to last couple of years, growth has been increasingly financed but by borrowing abroad. Whatever uptick in investment that we have seen over the last couple of quarters is not getting funded domestically, it is getting funded abroad which is why the current account deficit is widening.”

“The reason why it is not getting funded internally and people are being forced to go abroad and which is why the current account deficit is widening is one, there has been decline in corporate savings but more importantly the overall government fiscal deficit has not consolidated at all,” Aziz added.

According to Aziz, the growth needs to go down. He said, “In a situation like this there is no other option but to bring down the current account deficit by the old fashioned method which is by reducing growth.”

First Published:Sept 4, 2018 10:44 AM IST