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Is alternative to rupee needed?

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India showed its inherent economic weakness as the rupee fell to 68.8 against dollar, the steepest fall in the last two decades, during...

India showed its inherent economic weakness as the rupee fell to 68.8 against dollar, the steepest fall in the last two decades, during Wednesday’s business hours. The rupee has lost 13.1 per cent this quarter and 19.5 per cent this year. Although it saliently recovered during trading on Wednesday, the undercurrent is bearish and it is on the verge of hitting the 70-level, as predicted by analysts.

The weakness? Yes, we (Indians) go by sentiments and not by fundamentals. As Finance Minister P Chidambaram said on Tuesday, the present crisis is the result of “certain decisions taken during 2009-11,” without referring to the Pranab Mukherjee days. Truly, we rubbed the foreign investors on the wrong side by taking away tax benefits and stalling the reform process. Given his stature, Mukherjee could have done better, as he honestly admitted while demitting office that he might have committed a couple of mistakes, for which the Indian economy is now suffering. Of course, Chidambaram tried to correct the mistakes, but failed though successful on a few occasions.

For onlookers, Tuesday’s address of Chidambaram looks as an attempt to absolve himself and find a scapegoat for the present crisis. In fact, the Indian economy requires more reforms and less of restrictions. But, in the last two weeks, the Government and the banking regulator together initiated a number of measures, which the investor community took as an indication that there would be more controls on capital flows.

The investor does not believe the government. For instance, the Cabinet approved projects worth Rs 1.8 lakh crore, suggesting that it favoured growth. But, on the same day, the Parliament approved the Food Security Bill, costing the exchequer Rs 2.6 lakh crore. Such contra actions would cost the economy dearly. Investors will not accept pro-reforms and pro-populist stances at the same time. Now, India cannot gain the tag of ‘rising power’ with the present condition of rupee, and it will not become a currency power on par with the dollar. On the other hand, even as China’s economy is seen as slowing down, it is still chugging, while the US and other Western economies are recovering.
Unfortunately, most consider the rupee fall as more a business of the Finance Ministry and the RBI than anybody else; the rupee never figures in discussions of other ministries. In fact, today foreign policy and diplomacy are mostly determined by the economic objectives, and the External Affairs Ministry should be taken into confidence while making economic policy, which may be useful in building the international profile of the country. Here, it may be appropriate to refer to the idea mooted by Atal Behari Vajpayee in 2003, about building open boundaries and single currency among South Asian countries. But it could not take off more due to opposition within the country.
Then, even the ASEAN countries, together with Australia, China, Japan, New Zealand and South Korea, were looking towards India for a common currency move to be initiated. Now the time has come to initiate such a plan for bettering the Indian rupee. In fact, the idea is appropriate even now; it will break the monopoly of the US currency. That is what India wants now, to bring the rupee up. Of course, we may have to show a big heart and readiness to patch up the differences we have with neighbours, especially with Pakistan.
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