Press Esc to close
Thursday 21 September 2017
News updated at 5:34 PM IST

Crisis of confidence

Aug 29, 2013: 22:25 IST
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
A man is rescued from a collapsed building in the Condesa neighborhood of Mexico City after an...

A man is rescued from a collapsed building in the Condesa neighborhood of Mexico City after an...

A car sits crushed from a building felled by a 7.1 earthquake, in Jojutla, Morelos state, Mexico...

A car sits crushed from a building felled by a 7.1 earthquake, in Jojutla, Morelos state, Mexico...

U.N. : President Emmanuel Macron of France addresses the 72nd session of the United Nations...

U.N. : President Emmanuel Macron of France addresses the 72nd session of the United Nations...

People walk by a fallen tree off the shore of Sainte-Anne on the French Caribbean island of...

People walk by a fallen tree off the shore of Sainte-Anne on the French Caribbean island of...

The arms, bullets and other items recovered by the BSF from the two Pakistani infiltrators who...

The arms, bullets and other items recovered by the BSF from the two Pakistani infiltrators who...

An Anganwadi worker faints during a protest in favour of their demands, at Residency Road in...

An Anganwadi worker faints during a protest in favour of their demands, at Residency Road in...

A delivery boy pushes his bicycle through a water-logged street after heavy rains at...

A delivery boy pushes his bicycle through a water-logged street after heavy rains at...

The wall of Kohalgaon dam which collapsed during the trial run and inundated nearby areas of a...

The wall of Kohalgaon dam which collapsed during the trial run and inundated nearby areas of a...

Joe Acaba, left, the first astronaut of Puerto Rican heritage, talks during an interview with...

Joe Acaba, left, the first astronaut of Puerto Rican heritage, talks during an interview with...

U.S. President Donald Trump addresses the 72nd United Nations General Assembly at U.N. headquarters

U.S. President Donald Trump addresses the 72nd United Nations General Assembly at U.N. headquarters

Like us on Facebook

Copyright 2017, The Printers (Mysore) Private Ltd., 75, M.G Road, Post Box 5331, Bengaluru - 560001
Tel: +91 (80) 25880000 Fax No. +91 (80) 25880523
Powered by Yodasoft Technologies Pvt. Ltd.