India is back to a stage where it's economy needed props from the International Monetary Fund (IMF) and the Manmohan Singh government should keep the option of seeking a line of credit from IMF open in order to fix the twin problems of widening current account deficit and a plummeting rupee, former RBI governor Bimal Jalan has said.
"We have to keep all options open. And the reason for that is essentially, if you have seen Europe...
"When there was a pressure in the European markets, there was high deficit, high public debt and then International Monetary Fund pumped in money there, which stabilised the situation somewhat," Jalan said when asked whether India should explore the possibility of approaching IMF for money.
The IMF had, on earlier occasions, pitched in with loans when the country badly needed foreign exchange and the government should not hesitate to borrow from the IMF now, Jalan said.
The IMF had earlier bailed out New Delhi from balance of payment crises on more than two occasions, although government officials and some financial experts claim that the country is in far stronger position compared to those times.
But, with its current account deficit at 4.8 per cent of GDP and the rupee down 20 per cent against the US dollar so far this fiscal year, the government needs to look for safer ways of shoring up depleting forex cover as well as getting some foreign exchange to finance the widening trade deficit, he said.
India's forex reserves have come down from the highs around $300 billion levels to around $278 billion and fallen by $1.08 billion during the week ended 23 August alone, according to the latest RBI data.
The RBI has also lost much of its forex reserves in protecting the rupee through market intervention.
The worst performer in Asia, the Indian currency had touched an all-time low of 68.80 to a dollar earlier in the week and is currently trading at around 66-20 per dollar.