Press Esc to close
Wednesday 04 March 2015
News updated at 12:09 PM IST
Weather
Max: 31.7°C
Min : 16.9°C
In Bengaluru
clear sky

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
Ireland's George Dockrell is bowled for 25 runs by South Africa's Morne Morkel to end their Cricket

Ireland's George Dockrell is bowled for 25 runs by South Africa's Morne Morkel to end their Cricket

The debris is being cleared after landslides on Jammu-Srinagar Jammu National Highway

The debris is being cleared after landslides on Jammu-Srinagar Jammu National Highway

Artist staged a play Visa Nirikshaneyelliddaga at the inauguration of Dalita Natakotsava

Artist staged a play Visa Nirikshaneyelliddaga at the inauguration of Dalita Natakotsava

Badly damaged road in Bengaluru

Badly damaged road in Bengaluru

A Zimbabwe farm worker harvests tobacco at a farm ahead of the tobacco selling season starting on We

A Zimbabwe farm worker harvests tobacco at a farm ahead of the tobacco selling season starting on We

Snowfall in Kashmir

Snowfall in Kashmir

Britain's Queen Elizabeth and Mexico's President Enrique Pena Nieto ride a carriage as they leave Ho

Britain's Queen Elizabeth and Mexico's President Enrique Pena Nieto ride a carriage as they leave Ho

A model presents a creation by French designers Francois Alary and Ophelie Klere as part of their

A model presents a creation by French designers Francois Alary and Ophelie Klere as part of their

A general view of the 85th International Motor Show in Geneva

A general view of the 85th International Motor Show in Geneva

Kenya Wildlife Service rangers burn 15 tonnes of ivory confiscated from smugglers and poachers to ma

Kenya Wildlife Service rangers burn 15 tonnes of ivory confiscated from smugglers and poachers to ma

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