There is no stopping the Rupee’s decline


By Gautam Mukherjee on July 12, 2013

In the meantime, address pent up demand, regularise unauthorised colonies

An insolent Government that chose to ignore growth for all the time since 2008 is making us all pay with a free-falling currency. It is presently yo-yoing between 59 to 62 to the US dollar and it is wishful thinking to expect it not to head towards 70. There is very little by way of RBI intervention possible now that the rupee is crashing.

You cannot stop a tidal wave or a mudslide when it is on the move. Because the real reason it is doing so is because the economy is in a complete mess.

So, for inspiration, the Indian stock market is clutching at global cues. One straw, very popular everywhere is the state of the American Union. We listened keenly to what the outgoing Federal Reserve Chairman Ben Bernanke said about the future US economy. He said there is some recovery there and more is expected and our stock market rallied on this opinion. Perhaps, the mirage is if the US does better, so will we. China too is slowing drastically, its exports down, its domestic demand sluggish. Are we going to benefit from this?
Dallar and Rupees Relation copy

Rupee tumbles down a bottomless pit

Our precariousness is not just about the yawning maw of the Current Account Deficit (CAD) and runaway inflation alone. With little or no growth in sector after sector, it will engulf everything in its grasp in system breakdown mode. If you can’t manufacture anymore because of lack of demand it does not matter how good your product might be. Witness Mahindra staggering production. And Mercedes-Benz worrying about how their launches of the B-Class and the new E-Class is not making an impact. Even as Audi is busy raising prices in lakhs to compensate for declining margins.

Eagle’s View of the Indian Economy

And notice when 60 square feet tin sheds in Dharavi slum in Mumbai change hands for Rs 1 crore, a rate higher than the skyscrapers of hot destination Lower Parel. Of course, there is a buzz that it is going to be redeveloped per a 1998 proposal come of age, and it is very centrally located in a long thin city.

But verily, it’s all going a little topsy-turvy and unplanned when the as yet unprinted 12th Five Year Plan is already being reviewed afresh at the Planning Commission. But here’s the rub — if you raise prices to compensate for the falling rupee you end up making matters worse. Not that it will deter anyone from doing so. So, manage or perish if you will.

Rupee plunges past 61 vs dollar

The Government of India has never understood, except for the brief years of NDA rule under Atal Bihari Vajpayee, the crucial importance of promoting growth. In the end, neither did the voting population understand any better, because they took objection to the proposition that India was ‘shining’. Today, many realise that it was a comparative thing being referred to. And the objective reality is that it was certainly shining compared to the dire straits we find ourselves in after 10 years of UPA rule. Every advantage of the Vajpayee years has been squandered with nothing to show for it.

Despite talk of reform, India’s economy remains under stress

Nothing moves now except welfare and even that is not being executed particularly well. If helping the poor is the objective then surely it should not be at the expense of beggaring the rest of the nation. But this is a chariot, a juggernaut, that no one can stop. So, may it serve the people that need it most.

Even here, the Food Ordinance may end up impacting the rural farmer as people start arbitraging between the subsidised grain and open market prices. It happens in every charity zone, the given away and donated goods turn up on the black market. Human nature will not suddenly change to accommodate lofty ideals. But most people think idealism does not enter into it. It is a simple poll- winning strategy being employed with a reported Rs 500-crore publicity binge to follow.

Meanwhile, our balance of trade, never good, is tilting sharply against us. Uday Kotak says, symbolically, though truthfully enough, that our Ganesha idols now come from China. Infosys can only think of resurrecting their retired Midas to try and breathe life into its malaise. The banks are threatening to ‘name and shame’ the guarantors of absconding loan defaulters. Tax collections are down because even the big boys are not making much money today. Agriculture, at the root of the food politics today, is in crisis.

We cannot afford our guns and tanks, though it is claimed we will be spending more on defence purchases than Britain soon. Our role on the global stage will prove increasingly onerous without the money to fund it. And yet, what are we planning to do about it? Not a lot as it happens, because there is too little time left to reap any harvest from policy changes that may take years to implement and benefit from.

Better therefore to deal with pent up demand that can be alleviated with a few deft strokes at the Gordian knot of red tape. One part was the regularisation of unauthorised colonies in Delhi thus putting legitimacy and money in the pockets of many. It is being trotted out still, and may take time to dot all the I’s and cross all the T’s, but prices and transactions have gone up substantially.

Food Security Bill will destroy India’s economy

The next bit is about agricultural land, country homes, lal dora land, abadi land. All this will do likewise for the urban villages, hundreds in number, as well as the ‘Farm House’ wallahs and wannabes. It will roll out first in the Delhi/NCR region, recently expanded further, and can quickly be replicated all over the country wherever it seems appropriate, once the precedent is set and tested. And this by the State Governments themselves so that they can promote their own bonanzas.

This is indeed a way to conjure millions and billions of rupees, albeit devalued, and has been an open sesame and secret for the political classes and their rich friends for ages. But now, the idea is to spread the largesse and make a lot of voters happy almost instantly. It is a magic wand of regulatory easing of building, usage and zoning laws. It is expected to deliver explosive prosperity to many. And this sudden gain is expected to both lubricate the wheels of the election machine as well as trigger a consumption-led boom.


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