Movements in the rupee and Sensex continued to worry market
watchers. The rupee tanked below the level of 68 per dollar on 21 January,
trading at its lowest level since Raghuram Rajan took over as the governor of
the Reserve Bank of India (RBI). On the same day, the Sensex slipped to its
lowest level of 23,962.21 since Prime Minister Narendra Modi took office in May
2014. The clamour about the rupee going below 70 per dollar has increased in a
scenario in which most emerging market currencies are under pressure.
The recent fall in the rupee might be due to conditions in
the euro zone, plunging stock markets, falling foreign investment inflows and
strengthening of the dollar.
As India runs a large current account deficit, it needs a constant inflow of dollars, which was not there. High oil prices inflated the import bill and resulted in further widening of the current account deficit, which accelerated the rupee fall.
As India runs a large current account deficit, it needs a constant inflow of dollars, which was not there. High oil prices inflated the import bill and resulted in further widening of the current account deficit, which accelerated the rupee fall.
So what can possibly save Indian rupee??
To begin with, there needs to be a true gold alternative. In
the past few years, gold ETFs and loans added to its liquidity. Banks and PSUs
pushed gold coins to cash in on the craze. Also there is nothing wrong in heavily taxing
imports of luxury consumables and durables; and preventing low-value imports
that can be produced locally. Our manufacturing sector has to grow aggressively and has to
be provided with enabling infrastructure. India needs to promote its own
economic union with the goods and services tax. Most importantly, we
need a majority government with a clear mandate for development.
