Wednesday 23 April 2014
News updated at 5:08 PM IST
Weather
Max: 35.5°C
Min : 21.5°C
In Bangalore
Partially cloudy

Crisis of confidence

Aug 29, 2013:

The rupee is on an inexorable course of fall and market indices are finding fresh lower levels.

The Indian currency has lost about 25 per cent of its value in the last few weeks and has been hit hardest among the emerging market currencies. Though global factors like the threat of tapering of quantitative easing by the US Federal Reserve have destabilised all of them, the rupee’s decline has been accentuated by domestic reasons also. It is as if there is no bottom and the expected level of exchange has moved from Rs 60 per US dollar to Rs 65 and now to Rs 70. There are even worse scenarios, and it is doubtful if Thursday’s recovery is sustainable. With all psychological barriers breaking down both the currency and the markets seem to be headed for more trouble. Fears about a sovereign rating downgrade, created by the high subsidy involved in the food security scheme, and crude price hike were the latest negatives in action.

Both the RBI and the government have taken a series of steps since mid-July to stanch the bleeding of the rupee. These ranged from measures to attract foreign investment to curbing imports of gold and inessential items to restrictions on the outflow of capital. Some of them, like the raising of FDI caps, have only long-term impact. Others, like the curbs on imports, were not effective, as shown by the surge in gold imports. Yet others, like the new rules on capital flows, sent out negative signals and the markets and the rupee tumbled in a fierce response. The basic problem of burgeoning current account deficit (CAD), the gap between imports and exports, remained unaddressed.  The government hopes to bring it down from over $90 billion to $70 billion, but the hope has not been taken seriously by the market. Now the new hope, which is a virtue of necessity, is that the cheaper rupee will spur exports and narrow the CAD.  But manufacturing cannot grow and has in fact fallen in the adverse investment climate, and the curbs on mining and rickety infrastructure rule out an immediate export push.


Finance minister P Chidambaram has tried to talk up the rupee with a statement that it has overshot its value and with presentation of a 10-point plan for the economy. But the situation has gone beyond cosmetic action, comforting words and general plans. There is a current deficit of confidence and effective turnaround policy.

Go to Top

Photo Gallery
Bengaluru FC player in a Jubilant mood at International Airport,Bengaluru after winning I league...

Bengaluru FC player in a Jubilant mood at International Airport,Bengaluru after winning I league...

Timothy John Bristow, Sir Robert Bristow’s nephew with his wife Rebecca visits the Harbour Bridge...

Timothy John Bristow, Sir Robert Bristow’s nephew with his wife Rebecca visits the Harbour Bridge...

Priyanka Vadra shares meal with a village woman in a field during an election campaign for her...

Priyanka Vadra shares meal with a village woman in a field during an election campaign for her...

Encyclopaedia Britannica President Jorge Cauz and Geeta Dharmarajan, founder & executive directoR...

Encyclopaedia Britannica President Jorge Cauz and Geeta Dharmarajan, founder & executive directoR...

School children greet Sachin Tendulkar on the eve of his birthday in Moradabad...

School children greet Sachin Tendulkar on the eve of his birthday in Moradabad...

An Indian Hindu devotee prays to the river Ganges, in Varanasi, India...

An Indian Hindu devotee prays to the river Ganges, in Varanasi, India...

A ragpicker girl Zahanara Khatun, 12, looks at the camera as she searches for recyclable items at...

A ragpicker girl Zahanara Khatun, 12, looks at the camera as she searches for recyclable items at...

Indians stand on the banks of the River Yamuna, covered in industrial effluence on Earth Day in...

Indians stand on the banks of the River Yamuna, covered in industrial effluence on Earth Day in...

Indian devotees pray and take dip on the banks of the river Ganges, in Varanasi...

Indian devotees pray and take dip on the banks of the river Ganges, in Varanasi...

A man poses as he gets his face painted ahead of the sixth phase of India's general election...

A man poses as he gets his face painted ahead of the sixth phase of India's general election...

Copyright 2014, The Printers (Mysore) Private Ltd., 75, M.G Road, Post Box 5331, Bangalore - 560001
Tel: +91 (80) 25880000 Fax No. +91 (80) 25880523