Stop bickering,halt rupee’s fall
It is almost as if its new symbol has not brought the rupee much luck as it breached the all-time low of March 2009’s 52.19 to the dollar, trading at between 52.15 and 52.49. It did touch an intra-day high of a breathtaking 52.75 on Monday, but it pulled back and is 52.49 now. Currency analysts, however, do not rule out the rupee touching 54 and some Cassandras even predict 57 to the dollar after a few trading sessions.
What is disturbing is that the rupee was the worst performer among Asian currencies. While finance minister Pranab Mukherjee has attributed this depreciation to being a “reflection of international economic uncertainty”, and said he expected a “self-correction in the market”, the matter isn’t that simple. Most Asian countries also face the same uncertain global economic environment, more so as their economies are export-led, yet their currencies have depreciated by just 4-6 per cent this year compared to 15-17 per cent depreciation by the rupee. There is an important Indian element here, and that is the overall weakness in the Indian economy, which the government can ignore at its own peril. There is a lethal mix: high inflation, high interest rates, dwindling exports, imports getting hugely expensive due to the weak rupee, a scary dependence on imported crude (almost 80 per cent) and the consequent burgeoning current account deficit, and the fiscal deficit getting harder to control.
Add to this the political logjam in New Delhi: the impasse between the ruling coalition and the Opposition which is preventing any serious collective action on the economic front. While projects worth several lakh crores have been cleared this month, but their implementation is another matter. The perception of the foreign institutional investors, who essentially are “fair weather friends”, is that the government is unable to come to grips with the economic downturn. They have been withdrawing money from the stock market ($500 million in the past five trading sessions).
All eyes are now on the Reserve Bank to save the rupee from sliding further. RBI governor D. Subbarao said it would continue to ensure currency movements did not impair India’s macroeconomic stability, and echoed Mr Mukherjee’s view that the steep fall of the rupee in the past few days was driven by global dynamics, and that its future would depend on a credible resolution of the external situation, particularly the sovereign debt issue in the Euro zone. But Corporate India and others are unfortunately not that sanguine — as their debts gallop due to the declining rupee. Companies have for instance raised loans of `1,50,000 crores abroad, and have lost around `25,200 crores. And the burgeoning oil import bill alone will send the fiscal deficit soaring.
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