Why we are in panic? Weakened rupee is an opportunity. I wonder why our finance minister P. Chidambaram is battling to stem the collapse of the Indian rupee from 55 to a dollar a month ago to 67 this week. He really should be busy to exploit this opportunity.
The fall of rupee is a political, not an economic disaster. Our traders and big businesses, who have been growing based on cheap China imports, are in panic, but he should ignore them.
This indeed would help him since import of goodies, especially for the rich, will be curbed. Our traders are importing even zadus from China.
He and his boss Manmohan Singh must know that a weaker rupee is inherently not a terrible problem but an opportunity. Our foreign exchange reserves at about $250 billion are low, but nothing to panic about when exports grow, imports drop and investors start knocking our doors once again.
Instead getting bogged down by the phony experts, the government should get busy with removing the structural impediments in export by reducing formalities and with innovative incentives to push exports.
Let us reward those exporters, who have a large domestic value addition with full tax exemption. If the government does this on a priority basis, both Indian and foreign investors will flock around us like they did to invest in China.
I am glad that measures are being taken to curb imports with increased import duties on gold and consumer durables and raising short-term interest rates to shoo away the currency speculators.
Polls are still more than a year away. So let’s not worry about electoral prospects. We should be glad that the current situation will encourage exports and discourage imports.
When the rupee was falling over the last two years from 45 to 60 till three months ago, we lost time and did nothing to help exporters and encourage them with all sorts of incentives as China had done. Instead we will allowed inflation to hit sky high and perpetuate discouraging business climate.
We must note that in that period, in spite of no special efforts, our exports grew! The reflection of the rupee fall was seen in export growth.
GDP growth has slowed to 4.4 percent this quarter after racing along at 8.5 percent for a decade. The main reason is our failure to support Indian value addition by processing imported material into finished goods.
I believe that push to export reforms and imposition of fiscal discipline would revive spirits of bull. We have to explore all the alternatives including push to export. One way is to curb the consumption of luxury goods with higher level of state and central taxes.
I am sure the devaluation of rupee will have a positive effect on foreign investment in many of manufacturing areas. It has happened in China.
Remember that today India is now one of the cheapest sourcing destinations in the automotive industry, clothing, jewellery and tea. Globally-focused manufacturers in these sectors will mean a great boon.
As it is, many automobile companies are saying that India is now one of the cheapest places to source auto-parts and cars from because the Yuan is getting stronger.
I am sure weak rupee will have a positive effect on FDI, if we act like China did in early 90s. Let us give incentives like tax relief, quick response at the entry points for import of raw goods by exporters and speedy product export clearances, which help making our exports more competitive.
The writer is the former technology advisor to then prime minister Rajiv Gandhi and former chairman of the Electronic Commission.