There have been three unusual cycles of changes that we have been seeing lately when it comes to the Indian economy. Not in any particular order, these are the value of the Rupee, the stock markets and fuel prices. While the rupee has been yo-yoing about with the trend lines upwards in the last few weeks, the Sensex has been giving stock market investors a roller coaster of a ride in the last couple of months while fuel prices are on a unidirectional binge – higher, higher and still higher, again in the last few weeks. Such changes as we have been seeing recently in these three items are dramatic and have many ramifications on the lives of common people of this country.
The rupee on a downward spiral against the US Dollar should have been contained by more energetic intervention by RBI. With the rupee losing value leads to the rise in prices of almost every single item that is in the basket of daily necessities of the common man. The reason for this is not hard to find since we are dependent on imported oil and with landed prices of oil going up everything becomes costly because cost of transportation goes up. We have seen the rupee depreciating in the past but it always had been effectively contained by RBI’s intervention. This was at a time when our foreign exchange reserves were much lower than now where we are holding reserves in excess of US$ 300 Billion. With such reserves there should have been more comfort to try and hold the rupee to reasonable levels. To explain the inaction we are being given many reasons like – Let the rupee find its own level.
It is also being said that any strong intervention will lead to sending wrong messages to the international community about India’s sustained effort to pursue economic reforms.
And mind you this is happening when the rupee is not fully convertible. You can therefore imagine what will happen when the rupee becomes fully convertible which has to happen sooner or later if we are to join the comity of nations as a full-fledged economic player both in trade and services.
