BINAYAK DATTA
Is it a paradox? The Na tional Currency logical ly serves as the banner of the Economy. So again, logically if the Economy is strong, say a stated 8.2% growth for the Quarter, why should the currency fall 6% and calls for SOS for “Oxy gen” of about US$ 20biillion (between September and October). We shall see soon. The Genesis (in my view): Just Walk back; ever since 1947 (a bit of a masala for politicos sloganeering amongst each other). From Rs 3.30/- a Dollar in 1947, we are today the 5th larg est economy but the Rupee down to 90/- a dollar! Till 1966, (with a short interreg num) the Indian rupee was fixed at Rs13.33 to a British pound (roughly 4 dollars). Back in 1966, the Union Government “devalued” the rupee from its position at 4.76 a dollar to 7.50 a dol lar! It wasn’t a bad decision after all, (regardless of how hoarse the then Opposition cried out. The Government came up in 1965 with a stand-by arrangement from the IMF of US$ 200 million as a turn-around initiative post the two wars of 1962 and 1965. So, the Government had now more Rupees from the IMF and imports on aid and the precious dollars re served for debt servicing. So, it’s not always the case that the rupee going down bodes a doomsday for the econo my. China is a net exporting economy (where we are a net importing economy). So, the 3% devaluation they did in August 2015 helped in their exports further, in any case they already have a stronger trade-surplus of $1.08 trillion (ours a DEFI CIT in Merchandise Foreign Trade of $42 B) – so China in 2015 or Japan in 2024 had nothing really to lose! So, till we turn the tides our rupee will depreciate but it has to be manageable! That’s the task of the RBI and in a way for each of us! Remember, the impor tance of a thorough analysis from the given that, it’s not only the rupee weakening, against the dollar it’s also that the rupee weakening against nearly all of our ma jor trade partners viz: 21% down with the Euro, 14% with the British pound, 14% with the Australian dollar, 8% with the yen and 6% with the UAE dirham. The real effective exchange Rates (basket of 40 trading curren cy-partners adjusted with inflation in those countries) stands at 97.56 to a dollar. Demand and supply: So, trade-deficit control has to improve in place of slogans. “India First” is the right one I think followed by “make-in India”. I could never figure out for example, why we were ex porting cotton to Bangladesh, giving away our share of the garment exports market, al lowing them to manufacture with our raw-materials and export. Or say, how do we increase exports to Russia with whom we have a huge trade-deficit and enter into a fresh agreement on pricing exports in dollars? Difficult, but today’s world knows only “deals”! Strategic partner ships should logically encour age trade. India and our 28 States’ External Debts: The Union Government has an external debt of around $750 bn. Add to this the external debts of 28 States together, around another $70 million. Without double-count we already have a huge debt-servicing liabil ity in our country. Fix up tar gets stricter than the current FRBM teeth and caps, I think! Remember, for each rupee of fall, our costs tend towards 1.33/-, along with logistic and debt service costs. Forward Positions: As per reports in reputed dailies, the RBI had taken Forward Positions buying dollars in December, with a $5 Billion three-year INR-dollar swap. Now, not to forget the injec tion of another INR 2.9 tril lion liquidity to soften bond yields helping investments in equity earlier this week. Huge liabilities therefore are ahead of us and there’s a caution here, because most States spend more than they actually have, particularly in Husting-Season! Market sentiments and “perceptions”: Perceptions (“Brand India”) play a big role in the market for swaps and forwards in currency trading. For example, if the trader agrees on a swap for 3 years, he has to be sure of stability, eg: disruptions per ceived in normal trade, recall the spectacle of 60 parlia mentarians criss-crossing the globe telling our woeful story of terror. But should we not silently strategize our forward military inter ventions rather than talk more on terror with all and sundry? Will anybody ever come out with support? Silence, I’m sure is golden – often! We saw senior mil itary officers talk openly on television proving our gains with pictures! Take heinous acts of the fringe beating up young boys to death with hate and racial slur scattered throughout the country! Or visuals of illegal Indian Immigrants being unkindly deported from foreign coun tries are not healthy indica tors of a strong and grow ing economy! The world is watching! They could think 3-years-forwards? Too long! Transparency: And we badly need it. For example, when the GDP grew 8.2% Q2 and the manufacturing sec tor drove 9.1% how is it that the industrial output growth in the same month was just 0.4%? Suddenly today it shoots up to 6.7% in Novem ber! I know we have a huge unorganised sector, still why should basics suffer incon sistency in numbers. If the IMF C-grades our data, and a $17Bn FII outflow raises concerns over India’s macro fundamentals, let’s pre-clari fy our numbers, that’s all! Dollars from tourism: I wrote last month, of the tre mendous scope for getting dollars through our inbound travel industry. Just imagine, of the total 1,465M FTAs last year, we hosted just 10M (not counting NRIs returning home from overseas) and of the 10M in India we at Goa hosted just 4.7 lakhs! Out of a total global dol lar earnings in tourism of $1731B, India made just $35B. That is the opportuni ty for us! But before I part, many of us bet on the GDP as a be-all; a hundred years ago John Keneth Galbraith wrote: “It is almost as important to know what is not serious, as to know what is!” (The Afflu ent Society). (The author is a retired finance professional)
