Whether Rupee has entered in the senior citizens' club?

Rupee

With the rupee crashing recently to a record low of nearly  62 per dollar. Every  week that went by saw the Indian Rupee come under pressure all over again. it has become one of the worst performing currencies in Asia.  "Due to wrong policies of UPA-2, the rupee has grown old like our politicians Mnmohan Singh, L.K. Advani, Dr. Pranab Mukerji, etc and,  has entered into 'senior Citizens,s club'.

You just take a look at how the rupee fared against the dollar in the last two decades...in 1990 when it was  1 Dollar = Rs 18.11 You can,t believe that  in 1980,  the rate was 1USD = 7 bucks.                                                     

Around 1750's when the British came to India the exchange rate was around 1 Rupee = 2.8 pounds. By the time they left India in 1947, it was 1 pound = 5 rupees. Exchange rate with US dollar was about the same at that time. Basically, they bled the nation's economy to near death by transferring massive amount of wealth to Great Britain after causing famines and millions of deaths in India. Is the history indicative of some serious wrongs of current crisis period?

As mentioned earlier - there must be innumerable factors behind this fall of rupee today. However a cursory look at one of the key factors -relationship between governance and government and the value of rupee may reveal something we normally don't think about. Below is the historical data since 1973:

Rupee's worth is at an all-time low! The US Dollar (USD) to Indian Rupee (INR) exchange rate on November 22 was highest ever: 52.42 – almost 19% - 2nd highest drop in recent history. I'm not an economist. However, the numbers do not make sense. My common sense tells me that India's GDP growth rate is steady and much higher compared to the rest of the world except China. What could be the reasons behind this fall?

Despite there is significant decline in import of gold import in 2013 after putting so many restriction on import of gold., still the fall in rupee is continuing. The main cause of decline in import of Gold is that On July 22, the Reserve Bank of India issued a new policy, which linked gold imports with exports, and put restrictions on consignment import.

Decline in Gold,s Import

 Gold imports fell 81 per cent in June to 31.5 tonnes from 162 tonnes in May and 141 tonnes in April. Government measures to restrict import of gold are in place as it raised import duty and even stopped consignment imports of the yellow metal.  Gold imports in July are estimated to be significantly lower at around 40 tonnes, compared with a spurt in imports seen in April and May. Imports in July 2012 were 65 tonnes, said a bullion analyst.

Just the week before this, the Reserve Bank of India (RBI) had taken several steps to lend support to the Rupee. It sucked out the short term liquidity from the system and going to suck further 22000 crore of rupee through bond on 12/08/2013 and indirectly raised the short term rates. It had decided to leave all the benchmark rates unchanged during its monetary policy review. 

The Finance Minister too decided to lend a helping hand but all in vain. He came up with press conferences reassuring the world that the economic condition of India was not as bad as what people were making it out to be.  "The Minister of State for Finance Namo Narain Meena said in parliament that a number of measures have been taken to contain the CAD to reduce the volatility in the currency market and to stabilise the rupee.

"These include compression in import of gold and silver and non-essential items, allowing public sector financial institutions to raise quasi-sovereign bonds to finance long term infrastructure, liberalising ECB guidelines, permitting PSU oil companies to raise additional funds through ECBs and trade finance and liberalising NRE/FCNR deposit schemes. Meena said. Whether, all this will help the from falling of rupee. But the currency continued its journey downwards to hit a new low in Asia 2nd biggest economy. The fall in Indian currency is maximum amongst Asian countries". 

All steps taken by RBI and the government has proved futile and fruitless rather than soothing to strengthen the Rupee. Unfortunately the near term outlook for the Indian rupee is looking gloomier. As per the Economic Times, speculators expect the rupee to dip towards the Rs 65-66 levels than to 75 on account of  being wrong polices adopted by prime minister Manmohan Singh who has been pushing wrong reforms which are putting pressure on the rupee and the rupee has come down from 18 rupee to nearly 62 rupee per dollar passing its journey for  period since 1990 to 2013. Despite that the currency has become so cheap even than India fails to enhance its exports in world market .

In India, the inflation rate is over 10% or hovering around there, logically, what is happening is, due to inflation in India, prices are going up crazy and the effective buying power of a rupee is decreasing.  People who work in IT companies in India, get Salary hikes ranging from 15% to 30% every year, where as in America the average hike per year in salary is around 3%. This is the reason that the rate of inflation in America is nearly 2% vis-a-vis India's inflation. The logical reason for the disparity in the hike is the inflation. Also,  Indian economy is a growth phase and we can expect to have the inflation for the new decade or so…who knows…. The biggest atrocity is that the GDP has come down to 5% but inflation is increasing we are heading towards 'Stag-inflation' and UPA's government is not finding cure and treatment to revive the growth of the country  and bring down the prices despite the country is headed by world renowned economist Dr.Manmohan Singh.



The country is burdened with a heavy fiscal and Current account deficit problem. The current account deficit(CAD) has expanded to historic highs due to 31% increase in import and rise in demands of crude oil, edible oil and gold. Instead of creating structure of industry, the UPA government gave much importance on imports of undesirable items which could have been manufactured locally but no steps were taken.

And the government does not seem to be in too much of a hurry to implement the structural reforms necessary to bring the 'Fiscal  as well as Current Account deficit' under control. Despite the numerous assurances being given by the government on the deficit control front and various steps taken by RBI to control further fall of rupee both have failed to achieve cherish goal; it still seems to be reluctant when it comes to making the bold decisive moves. 

In the meantime the Rupee is expected to continue sizzling in future too or government would have to restrict free flow of foreign currencies out worldly. And this adds to the woes of the common man. How? Because of the price of oil and related products and services. You see India is a big importer of oil. If the rupee depreciates, the rupee value of imported oil soars upwards. And this means the cost of petrol, diesel, etc would go up as well. The recent spate of fuel price hikes is testimony to this. So if oil prices are increased, it means that everything that depends on oil as an essential input, would also see its prices go up. For example if fuel prices go up, then cost of transportation increases and this means that the cost of transported goods goes up. This in turn would mean increased costs of even basic items like grains, vegetables, fruits, cloth, petrol, deisal etc.

So if rupee continues to remain depressed, it means that higher inflation would burn a hole in our pockets, and people will have to suffer due to wrong and directionless policies of the UPAII's  government. They may stop further buying in non essential goods which will mar further growth.

Uncontrolled Black Money

The rupee is bleeding with tears and government still pressurizing RBI to decrease the interest rates. On the contrary, fall of rupee would keep the RBI under pressure to keep interest rates at higher levels which is counter productive in growth. Our economy is in torpedo. This in turn would hurt the economic activity, growth, employment, development. Needless to say, that fall in rupee would give a negative signal to investors resulting in  adding further pressure on the rupee and affecting investment in the country.  

The fall in rupee is only helping NRI but that has also not helped rupee to rise. Net result - the rupee is in a vicious cycle and fall of rupee is worst than rise of inflation, and we are stuck in the middle of it. There is not wonder if rupee falls to 75 rupee per dollar in this way until the elections next year!Because government would like to give more lollipops to Indian to allure votes
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