JOIN USRupee fell to a low of INR 61.21 to 1 US Dollar on July 8, 2013. Despite the short term actions by RBI, which prop up the rupee against the dollar, overall the rupee has been sliding quite precariously. It has seen a fall of 13 per cent since May of this year and threatens to slip further against the dollar.
We all know that as the rupee falls, the imports will become more costly. Petrol, diesel, cooking gas and other petroleum products will become all the more expensive. When diesel becomes dearer, the transport costs will increase as the trucks and much of the railway rolling stock depend on this fuel. A considerable portion of thermal power generation also depends on petroleum fuels. So, the energy costs would increase. It all has a cascading effect on the prices that we pay for various items of daily consumption. Vegetables that are already selling at astronomical prices may become costlier.
India’s current account deficit, which is already high, may become higher. Fiscal deficit will also get bigger, what with the defence spending that we indulge in. This would accentuate the problem of weakness of rupee. The relief from a boost to exports would only be momentary as a considerable part of the exports need the expensive imports; moreover, significant portion of our exports are from outsourcing, where prices get renegotiated.
The government’s response is typical. Finance minister P Chidambaram and Prime Minister Manmohan Singh come up with assurances that the slide will be arrested. Time and again, the prime minister’s Economic Advisory Council’s chairman tries to reassure the public that all is under control and the rupee will regain its past value. However, the rupee continues to fall threateningly. The reasons should be obvious particularly when the election year 2014 is fast approaching and the government’s reputation is so badly mired in huge corruption scandals and economic mal-administration.
The response is more like that of a political party than that of a government managing the country. When politicians take charge of a country, they should behave like a government. A politician has to become a good administrator and a statesman. Unfortunately, such a transformation of roles has not taken place. Politician continues to remain solely a politician devising schemes, plans and programmes that help him/her continue to remain in power and all that comes with it. Political party, instead of people or citizens, remains the focus of all attention. The main purpose of the ministers and others in the government becomes the preservation of the party and its power. People or aam aadmi figure only when some lip service is to be done.
Chronic problem
No one in the government looks at the real problem with the falling rupee. It definitely points to a chronic problem at the core of our economic and social administration. The fall in rupee value is only one of the manifested symptoms. One may say that Indian economy has grown at a pace of at least 5 per cent per year, for a few years at even 8-9 per cent; didn’t it? So, where is the problem? To this, one needs to point out that this has been a short term lop-sided unbalanced growth. And precisely, that is the problem or contradiction with our economy. A lop-sided growth cannot continue for long. For one, the basics of education for all and healthcare for all has not been addressed except in Chidambaram’s lip service to Sarva Shiksha Abhiyan.
Healthcare at the base level or grass-root level has suffered from serious failures in implementation. Let us understand that without this foundation having been laid, it is impossible to sustain the so-called economic growth. A country’s products and services will only be as good as its people. And, the ‘people’ is not limited to a few college-educated so-called ‘middle’ class people. This has been a problem never seriously tackled, for there has never been a serious intent on the part of the politicians who occupy the various ‘berths’ in the government.
Next unattended problem has been the lack of infrastructure. Railways have progressed at the speed of a snail during the last 66 years after Independence. The state of our energy infrastructure is woeful. We have been perennially deficit in energy production, and wasteful in transmission and distribution. Now with coal mining/production having hit a snag, thermal power generation has been strangulated. These are all basic requirements for people, enterprises, social and economic progress to sustain.
An important aspect towards which we – government, industry and people – have remained cold has been that of research, development and innovation. Industry does not want to invest in R&D. Indian industry has been lethargic and lacking in vision just as the government. They want quick results and returns. Government never tried to coax the industry into such activity. Consequently, there are few, if any, new products from the industry; quality also suffers for lack of development. Be it manufacturing, service industry or IT software industry, new products are very few. Just as Indian manufacturing, which was doing comparatively okay, has lost its sheen, the IT industry too seems headed in the same direction sans innovation.
With such grave problems eating away at the very guts of India as a society and an economy, the foreign funds have stayed in Indian market only because of the financial crisis gripping the Western world. Now, the moment the American economy shows signs of recovery, the funds are returning back to USA taking away the wind out of India’s super growth story. Government will try to project an image of concern by taking palliative measures which will not help the fall in rupee.
(The writer is a former professor at IIM, Bangalore)