"If someone says that rupee is undervalued we have to put in the proper perspective, maybe in some sectors of the economy the rupee is undervalued but I don't think the rupee is undervalued if you look at the prices of high-end luxury Mumbai properties," Mr Faber said.
Mumbai property prices are amongst the highest in world, he added.
The rupee last week fell to an all-time low of 65.56, and has lost nearly 15 per cent in the last three months.
Read: How a communication gap made the rupee crisis worse
As far as rupee defence is concerned, Mr Faber was of the view that there was no easy way out and interest rates would have to go up substantially.
"...in India they (interest rates) would have to go up rather substantially so that real short-term interest rates would be positive. To do that it's very painful on the economy in the near-term for the next say one year," he said.
India needs to stabilise the currency on a permanent basis and then it can build "sustainable steady" economic growth, he said.
The possibility of a credit downgrade was very much real for India now, given the economic scenario. Mr Faber pointed out.
Recently, global investment bank Goldman Sachs downgraded India to "underweight" saying growth recovery remains elusive. India's economy grew at a decade-low 5 per cent last fiscal.
Spelling out the Catch-22 situation India finds itself in, Mr Faber said, "You can inject money in the system then rupee would collapse, or if you tighten monetary policy then the rupee will stabilise but economic activity will go down. It's painful regardless."
Indian government brain-damaged?
Mr Faber was extremely critical of the government's choice of moves to rein in the current account deficit especially the curbs on gold, which in turn was expected to help prop up the rupee. India's current account deficit widened to a record 4.8 per cent of the GDP or gross domestic product last fiscal.
"Of course the government says no no you can't own gold, that is the typical reaction of a brain damaged government. When people do the right thing, tell them no you shouldn't do that," was Mr Faber's scathing remark.
The government has recently put a number of curbs on gold import by raising duties and has been very vocal in discouraging gold purchases.
For the long run, Mr Faber said he would rather be invested in gold.
In the recent past the Indian government has tried to implement a number of measures to rein in the current account deficit and support the rupee. One move which has been seen as desperate and absurd by many is the government banning the import of duty-free TVs from abroad from today. Earlier airline passengers were allowed to bring in TV sets worth up to Rs 35,000 as part of their baggage allowance. Under the new rules, passengers will have to pay a 35 per cent duty and other charges from August 26.
Also Read: Govt may soon unveil big steps to bolster rupee