MUMBAI, Dec 25: The Reserve Bank of India has described the sharp fall of the Indian currency against the dollar as a "correction" of the cumulative real appreciation of the rupee.

The `Report on Currency and Finance 1996-97', released by the Reserve Bank of India on Thursday, attributed the "gradual" depreciation of the Indian unit to the high value of the trade-based real effective exchange rate of the rupee.

The central bank also rejected the recommendation of the SS Tarapore panel on capital account convertibility for an exchange rate band. The conduct of exchange rate policy, according to the report, is guided by the need to maintain a delicate balance between the considerations of external competitiveness and price stability.

The sharp depreciation of the rupee -- from 35.8139 against the greenback in April 1997 to Rs 38.9900 on December 4 -- is "reflective of a correction of the cumulative real appreciation of the rupee," the RBI report said. Since then, the rupee has depreciated further.The trade-based real effective exchange rate of the rupee, which had appreciated by 9.6 per cent by March 1997 over March 1993, rose further by 3.1 per cent during April-August, the RBI report said.

The central bank has reiterated its concern over the deceleration in industrial growth and pegged the growth of the economy at six per cent. Former RBI governor C Rangarajan had, in the busy season monetary and credit policy announced in October, given the first indication that GDP growth would fall from the earlier projected seven per cent to six per cent.

Stating that the "performance of the industrial sector has been a cause for some concern", the report said that the "slower than expected recovery of the industrial sector is not likely to be adequately compensated by the out-turn in the agricultural sector." The Reserve Bank is, however, hopeful that the manufacturing sector will look up in the last quarter with the improvement in the performance of infrastructure industries and "possible increases" in export demand.

The central bank's report has a word of caution on shooting government expenditures. It also reiterated its stand on the "critical importance" of a reduction in subsidies.