Catch-22 or …

…  Hobson’s choice

With Rupee breaching the 61 mark against the Dollar, some financial analysts are thinking to address the CAD and imports at once. The question is how is this going to happen, if the Rupee slide is not arrested? Or even, if the rupee slide is not arrested, how is CAD going to be addressed?

Two months down the line, Rupee might breach the 63 mark and stop there for a long time. To attain a stable currency, here is some food for thought:

  1. Let the Rupee come to an equilibrium point first; maybe it is the 63 mark +/- 1, but small measures need to be taken so that it does not come out to the +/- 5 variation within a month or two. It is only then the bigger measures can be taken.
  2. Is Rupee allowing greater exports, we have to find out. Is by lowering of the rupee helping the exporters, we have to find out. Just a meagre 1.8% of the world’s total export is not helping the sudden cause: services are stopped at a standstill, imports are ever increasing. The best part at this time is to lessen the burden of foreign borrowings at the earliest, and boost exports simultaneously.
  3. Will some of the countries be willing to trade in our currency? That is something that we have to find out.  I am not telling to replace trade and commerce with an alternate currency, other than the dollar, but do we have enough bandwidth to trade in INR?
  4. Will China be willing to float the dollar reserve bonds in the market? That will allow dollar to come down a bit, and arrest sudden spurt of the dollar against other currencies. But, will the USA be interested to buy-back the Dollar Bonds from China, while spur growth as well.
  5. Bring in more dollar reserves via services or traded goods export; our economy might be robust from inside, but we should think to garner some dollars via small and varied amounts, even if it means raising dollars outside India.
  6. Idolizing FIIs may not be the right decision in the longer time. By and now, I have always mentioned that we need Domestic Institutional Investors to run the show. The rupee will then slide further in this process, but eventually start gaining higher grounds, at a later stage.
  7. Make India a haven for investments for the time being. That is why FDI norms are useful in allowing investments in aviation, manufacturing and subsequent industry verticals that need growth to be arrested.
  8. Food Security Bill will allow around 60% of the food grains remain in the shelf. Even though it is a populist measure, the best quality exports need to be exported, and not stored- even if it means we need to store the 30-40% of the total food grains.
  9. As far as RBI is concerned, I believe that it will take corrective measures. A country is like an individual, when you are going stronger inside, you actually turn to a cocoon. The best part is when you have internally garnered enough strength to face the world; you exhibit skills that are unmatched. Let the slide happen till the internal opportunities are as well stabilized.
  10.  At the end, if RBI is taking things for the long time measures as well, then we do not need to worry at any front. But, the future will be jeopardized, if we do not ask ourselves whether this are for longer terms as well or not.

At the last effort, I do not see any reason to hit the panic button at any time. Let the Rupee slide to a stable zone first, even if it is against the short-term measures.

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