1. Introducing the smashing new Team FIAT T-Shirt !! To order yours click here : Team FIAT T-Shirt

Falling rupee, what it means to you?

Discussion in 'Hangout' started by Sat-Chit-ananda, Jul 17, 2013.

  1. The Reserve Bank of India (RBI) finally threw in the towel today. Over the past several days it had been selling dollars in the foreign exchange market and had thus managed to hold back the rupee to under 60 to a dollar.


    The RBI tried halting the fall of the rupee by selling dollars today as well. A report on www.livemint.com points out that “The Indian central bank(i.e. the RBI) intervened by selling the dollar at 59.98, earlier in the day, according to currency dealers, who added that a foreign bank had aided RBI by selling dollars in the market.”


    This helped the rupee to recover to around 59.93 to a dollar. But it soon crossed 60 to a dollar. At the end of trading today, one dollar was worth Rs 60.73.
    rupee_reuters-125.jpg Reuters

    The question being asked is could the RBI have continued to sell dollars and help stem the fall? As on June 14, 2013, India had foreign exchange reserves of $290.66 billion. This is tenth largest in the world.



    So it seems that the RBI has enough dollars that it can sell to halt the rupee’s fall against the dollar. But things are not as simple as that. Indian imports during the month of May 2013, stood at $44.65 billion. This basically means that the current foreign exchange reserves are good enough to cover around six and a half months of imports ($290.66 billion of foreign exchange reserves divided by $44.65 billion of monthly exports).


    This is a very low number when we compare it to other BRIC economies(i.e. Brazil, Russia and China),which have an import cover of 19 to 21 months. What does not help is the huge difference between Indian exports and imports. In May 2013, Indian exports fell by 1.1% to $24.51 billion. This meant that India had a trade deficit (or the difference between imports and exports) of more than $20 billion. The broader point is that India is not exporting enough to earn a sufficient amount of dollars to pay for its imports.


    In this scenario the RBI can use only a limited portion of its foreign exchange reserves to defend the dollar. An estimate made by Bank of America- Merrill Lynch suggests that the RBI can use upto $30 billion to defend the rupee. If it chooses to do that the foreign exchange reserves will come down to around $260 billion, which would mean an import cover of around 5.8 months ($260billion divided by $44.65 billion of imports). This will be a very precarious situation and was last seen in the early 1990s, when India had just started the liberalisation programme.
    This is one reason behind why the RBI cannot stop the rupee from falling beyond a point. More than that it does not make sense for any central bank (unless we are talking about the People’s Bank of China) to obsess with a certain currency target against the dollar. This was the learning that came out from the South East Asian crisis of the late 1990s.

    Various South East Asian currencies were pegged to the dollar. The Thai baht, was pegged to the US dollar with one dollar being equal to 25 Thai baht. The Philippines peso was pegged at 25 pesos to the dollar. The Malaysian ringgit was pegged at 2.5 ringgits per dollar and so was the Indonesian rupiah, which was pegged at 2030 rupiah to a dollar.



    The central banks of these countries ensured that there currencies continued to remain pegged. In case the market suddenly had a surfeit of baht, and the baht started to lose value against the dollar, the Thai central bank started to buy baht and sell dollars. In a situation where the market had a surfeit of dollars and the baht started to appreciate against the dollar, the Thai central bank intervened and started to buy dollars and sell baht. This ensured that the value of the baht against the dollar remained fixed.


    But when the South East Asian crisis started, investors started to exit these countries lock, stock and barrel. So if an investor sold out of the Thai stock exchange he was paid in Thai baht. When he had to repatriate this money abroad he needed to convert these baht to dollars. So suddenly the foreign exchange market had a surfeit of Thai baht. In the normal scheme of things, the value of the baht would have fallen against the dollar. But the baht was pegged to the dollar. So as a logical step the Thai central bank started to sell dollars and buy baht, in order to ensure that one dollar continued to be worth 25 Thai baht.


    In May 1997, the finance minister of Thailand was fired. The new finance minister made a secret visit to the central bank and realised that the country had more or less run out of dollars trying to defend the dollar-baht exchange rate. The bank had run through nearly $33billion of foreign exchange reserves trying to defend the exchange rate.
    On July 2, 1997, Thailand decided to stop supporting the baht and let it fall. It was estimated that the baht would fall by around 15%, but instead by the end of July it had already fallen by 20% to 30 baht a dollar. A year later the exchange rate was down to 41 baht to a dollar. And within two weeks of Thailand setting the baht free, others followed. The Philippines peso’s peg with the dollar broke on July 14. The peg of the Indonesian rupiah and the Malaysian ringgit also broke the same day.



    A year later the Indonesian rupiah was at 14,150 to a dollar. It had been at 2380 to a dollar. The Malaysian ringgit was at 4.1 to a dollar, down from 2.5. And Philippines peso was at 42 to a dollar against 26.3 a year earlier
    That is the problem with trying to defend the exchange rate. It needs an unlimited amount of dollars, which no country in the world other than the United States (and to a certain extent China which has nearly $3.3 trillion foreign exchange reserves) has. And only the Federal Reserve of United States, the American central bank can print dollars. No other central bank can do that.


    A similar situation is playing out in India right now. Foreign investors are looking to exit the country. They have sold off more than $5 billion worth of bonds since late May. They have also sold off stocks worth $1.39 billion in June, after buying stocks worth $4 billion in May. These investors are now trying to convert there rupees into dollars, and that has led to the rupee rapidly depreciating against the dollar.


    The RBI tried to halt this fall by intervening in the foreign exchange market and selling dollars. But as the South East Asian experience tells us, obsessing with a certain target against the dollar is not a great idea.
    So given that the RBI has got it right by not obsessing with the target of Rs 60 to a dollar. But the trouble is that a weaker rupee will have several negative consequences in the days to come (This is discussed in detail here).
    First and foremost will be higher inflation as India will pay more for imported products. Oil will become expensive in rupee terms. If the government passes on the increase in price to the end consumer, then it will lead to higher prices or inflation. If it does not pass on the increase in prices to the end consumer then the government will run a higher fiscal deficit as its expenditure will go up. Fiscal deficit is the difference between what a government earns and what it spends. It will also mean that the government will have to borrow more to finance its expenditure and that in turn will mean that the high interest rate scenario will continue.



    India imports a lot of coal which is used for the production of power. With the rupee losing value against the dollar the cost of importing coal will go up. Coal in India is imported typically by private power companies to produce power. The government owned Coal India Ltd, does not produce enough coal to meet the needs. The Cabinet Committee on Economic Affairs recently decided to allow private power companies to pass on the rising cost of imported coal to consumers. This again will add to inflation.


    Companies which had borrowed in dollars and have not insured themselves against the fall of the rupee, will have to pay more. Economist Arvind Subramanian points out in the Business Standard that there will be “a decline in the profitability of all those enterprises that have borrowed heavily in foreign currency and have not insured themselves against a rupee decline (“unhedged borrowing”).”


    This cost “will manifest itself in reduced investment by these companies and hence lower aggregate growth; it will also manifest itself (eventually) in a worsened fiscal situation because the government will have to support these companies directly or the banks that have lent to them,” writes Subramanian.
    The broader point is that India is screwed both ways irrespective of whether RBI defends the rupee or not.

    Don't expect the monthly installments on your home loan to fall soon.Think how we can reduce the impact on economy ? continuing to drive cars everyday office doesn't help in the long run.
    Our PPP is 3 largest in the world, but may not be in next few months.

    Source first post. http://www.firstpost.com/economy/india-is-screwed-no-matter-what-rbi-does-on-rupee-907963.html
    Last edited: Jul 17, 2013
    4 people like this.
  2. I think we are aging in the similar situation as in 1991. Not sure why Govt can't explore oil reserves with in India?
    Or promote alternate fuels like hydrogen.

    - - - Merged Post - - -

    At a news conference last week, India's harassed finance minister, P. Chidambaram, addressed the issue of the rising current account deficit and the fall of the rupee against the dollar. His message to his countrymen: Please stop buying so much gold.

    Chidambaram has a point. India is the world's biggest consumer of gold, accounting for a little more than one-third of world demand. Traditionally, gold in India has served a double purpose of consumption (it's often the single biggest expense at a wedding) and investment, because it is seen as a more reliable hedge against inflation than savings in financial instruments. Urban and rural Indians differ in their habits in many other spheres, but they are united in their trust in gold. A recent report showed that gold accounted for as much as 10 percent of total household savings in 2011.
    Enlarge image i9Zg_XGNCuOY.jpg
    Gold necklaces sit in a window display at a Dhanraj Jewelers store in Mumbai. India this month increased a tax on gold imports as it tries to curb demand for the metal that’s contributed to the current-account gap and hurt the currency. Photographer: Dhiraj Singh/Bloomberg



    Unfortunately, almost no gold is produced domestically, and so rising demand for the precious commodity severely affects the balance of payments. Gold is now the second-largest expense on India's import bill, after crude oil. One would have thought that rising gold prices -- a jump of more 500 percent since 2000 -- would have had the effect of curbing demand, but that's not been the case. As this graph shows, India's demand for gold remained between 550 and 800 metric tons annually from 1997 to 2009, even as prices kept going up.
    Here's a market, then, that appears to be price inelastic -- but apparently only when prices are rising. When prices fell to a two-year low in April, gold demand shot up to record levels, with monthly imports averaging 152 tons in the first two months of the new fiscal year, more than twice the monthly average of 70 tons from the previous year. To suppress demand, the government has already raised the import duty on gold twice this year, from 4 percent to 6 percent in January and then from 6 percent to 8 percent in June. Last week, Chidambaram delivered a small homily on gold that was part economics lesson, part supplication:
    On gold, I am happy that all my appeals are being heeded partly by the people of India.... Net gold imports averaged 135 million dollars a day in the first 13 business days of May.... However, in the subsequent 14 business days, it averaged only 36 million dollars. So gold imports have sharply come down, but I would be happy if they come down even further. I continue to hope and dream. Suppose we stop gold imports ... suppose the people of India don't demand gold and we don't have to import gold for one year ... the whole situation will so dramatically change.

    People who want to buy gold must realize that every ounce of gold is imported -- every ounce. No gold is manufactured in India. You pay rupees, we have to provide the dollars. You think you are buying gold in rupees but actually you are buying gold in dollars. I would once again appeal to everyone: please resist the temptation to buy gold. If we can have it for six months, one year ... it will dramatically change the situation of the current account deficit, and you will see its positive impact on every other index that measures the economy: stock market, exchange rate, interest rates. ​
    Chidambaram is right, as this graph calculating India's trade deficits with and without gold demonstrates. He is by no means the first finance minister to try and persuade his countrymen not to park their money into gold. Last year, his predecessor Pranab Mukherjee, was quoted as saying that the:
    Quantum of import of gold ... is a clear indication (that) large section of community ... want investment in dead asset only with expectation that value would appreciate.... Time is ripe to motivate our educated upper middle class to climb from saving mode to wealth generation mode. ​
    This is, however, a long-term project. India's gold-buying culture is deeply entrenched. As Leif Eskesen, chief economist for India and Southeast Asia at HSBC Holdings Plc, wrote in his report "India Perspectives: The Love Affair With Gold" published earlier this year:
    Gold imports have always been high in India, which has left Indian households collectively holding no less than 20,000 tonnes of gold, according to the World Gold Council. At current prices that works out to USD4,500 worth of gold per household. ​
    Arguing that investing in gold was for many Indians a perfectly logical decision, Monika Halan wrote in the business newspaper Mint:
    I hold the view that the Indian household makes a sensible decision to hoard gold. It is sensible because access to financial assets remains difficult and where access is easy, the regulatory failure to stop large-scale cheating of retail investors ... has broken the fledgling faith in markets for the average investor. Regulatory and institutional failure is the reason people hoard gold and not because they are stupid. And as the country looks more and more unstable, we buy more and more gold—perfectly logical and rational. This is no different than industrialists moving their business overseas and the rich buying real estate and stock abroad. ​
    As the late Indian economist IG Patel, who wrote extensively in the 1950s on India's gold obsession and ways in which to mobilize the hoarded wealth, once said: “In prosperity as in the hour of need, the thoughts of most Indians turn to gold.” The evidence from the last few years suggests that when steeply rising prices, and a debilitating current account deficit that raises the cost of other goods, come up against a powerfully entrenched cultural reflex, it's not always the laws of economics that win out.
    Source http://www.bloomberg.com/news/2013-06-20/indians-are-urged-to-get-over-their-gold-bug-.html
    1 person likes this.
  3. Source Balance of payment problems hamper rupee rescue | Reuters

    (Reuters) - With only enough cash in the Reserve Bank of India (RBI) to pay for seven months of imports, $172 billion of debt falling due in the next eight months and weak fund inflows, the balance of payments position is undermining its ability to defend a tumbling rupee.

    A heavy dependence on imported energy, gold and technology means India has historically run a current account deficit, which it has funded by attracting foreign money into stocks, bonds and corporate investment.
    But as global investors turn away from emerging markets in anticipation of the U.S. Federal Reserve starting to wind back its stimulus, India's weak external position makes it more vulnerable to outflows and a balance of payments deficit.
    India has $280 billion of foreign exchange reserves. That is only enough to cover seven months of import bills, by far the lowest of the BRICs, the four major emerging market economies.
    That has left the RBI with limited firepower to support a rupee which has fallen 12 percent since the start of May and hit a record low of 61.80 to the dollar last week.
    India "can't afford to defend the currency much with such little reserves," a policymaker said, declining to be identified as he was not authorised to speak with media.
    The RBI is said to consider three months of import cover to be the minimum acceptable level, but some central bank insiders are said to be uncomfortable that reserves have run down to the lowest in terms of import cover since 1996.
    "The lower import cover continues to be a source of discomfort," said another policymaker.
    "We would like to increase the import cover. If there is a gap in the BOP, then the currency will have to take a hit."
    That said, India is not yet looking at a repeat of its 1991 crisis. Then, with only enough reserves to cover three weeks of imports, the government was forced to pledge its gold in order to pay its bills and had to push through reforms to start opening up the economy.
    GRAPHICS ON INDIAN ECONOMY:
    Current account, growth, rates: link.reuters.com/nan89t

    Rupee, bonds, implied FX yields: link.reuters.com/gaw89t
    Import cover: link.reuters.com/suv22v
    VULNERABLE

    In the fiscal year that started in April, stocks have attracted a net $2.3 billion in inflows, but if that changes India could find itself with a balance of payments deficit. Debt has seen a net outflow of about $5.7 billion.
    Stocks account for a whopping $220 billion of foreign holdings in India, according to Bank of America-Merrill Lynch. Debt makes up a comparatively small $81 billion in foreign assets, government data shows.
    India ran balance of payments (BOP) deficits in 2008/09 and 2011/12. It posted a small surplus of $3.8 billion in the 2012/13 year that ended in March, but some economists expect it to slip back into deficit this fiscal year.
    All up by the end of this fiscal year, India needs to refinance or repay $172 billion of liabilities -- such as foreign borrowings, trade credit, and private debts -- which is almost 45 percent of its overall external borrowings and equivalent to 59 percent of its reserves.
    "We are vulnerable now," said Abheek Barua, chief economist at HDFC Bank in New Delhi.
    "If this vulnerability manifests into one large default on domestic loans or external commercial borrowings, it could threaten a sovereign rating downgrade and that could trigger a balance of payments crisis," Barua said
    Any corporate default is seen as more likely to be on domestic debt, but the risk is it would spoil the broader investment environment and hit already-slowing economic growth.
    Investors are hoping the appointment of Raghuram Rajan, a former chief economist of the IMF, as RBI governor from September helps accelerate measures to stabilise the rupee.
    Rajan has spoken of a sovereign or quasi-sovereign bond issue to attract dollar inflows, widely seen as an effective if costly stop-gap measure to support the rupee. Outgoing Governor Duvvuri Subbarao has spoken against issuing sovereign bonds.
    CURRENT ACCOUNT DEFICIT
    While the government has put curbs gold imports and taken other measures to narrow the gap on external accounts, investors and economists believe much more is needed to attract long-term funds to help balance the external accounts.
    The current account is in persistent deficit -- there was a shortfall of $88 billion, or a record 4.8 percent of GDP in 2012/13 -- but there are limits to what can be done to lower it.
    The bill for oil, the largest and most inelastic of India's imports, was $169.4 billion in 2012/13, and a weaker rupee will only push up the cost further.
    HDFC Bank's Barua expects India to end up with a balance of payment deficit of $12 billion to $15 billion in 2013/14.
    "We are not close to the crisis situation seen in 1991, but it cannot be ruled out of a realm of possibility," he said.
    (Editing by Tony Munroe and John Mair)

    - - - Merged Post - - -

    Source http://in.reuters.com/article/2013/08/12/india-economy-payments-rupee-idINDEE97B00820130812

    (Reuters) - With only enough cash in the Reserve Bank of India (RBI) to pay for seven months of imports, $172 billion of debt falling due in the next eight months and weak fund inflows, the balance of payments position is undermining its ability to defend a tumbling rupee.

    A heavy dependence on imported energy, gold and technology means India has historically run a current account deficit, which it has funded by attracting foreign money into stocks, bonds and corporate investment.
    But as global investors turn away from emerging markets in anticipation of the U.S. Federal Reserve starting to wind back its stimulus, India's weak external position makes it more vulnerable to outflows and a balance of payments deficit.
    India has $280 billion of foreign exchange reserves. That is only enough to cover seven months of import bills, by far the lowest of the BRICs, the four major emerging market economies.
    That has left the RBI with limited firepower to support a rupee which has fallen 12 percent since the start of May and hit a record low of 61.80 to the dollar last week.
    India "can't afford to defend the currency much with such little reserves," a policymaker said, declining to be identified as he was not authorised to speak with media.
    The RBI is said to consider three months of import cover to be the minimum acceptable level, but some central bank insiders are said to be uncomfortable that reserves have run down to the lowest in terms of import cover since 1996.
    "The lower import cover continues to be a source of discomfort," said another policymaker.
    "We would like to increase the import cover. If there is a gap in the BOP, then the currency will have to take a hit."
    That said, India is not yet looking at a repeat of its 1991 crisis. Then, with only enough reserves to cover three weeks of imports, the government was forced to pledge its gold in order to pay its bills and had to push through reforms to start opening up the economy.
    GRAPHICS ON INDIAN ECONOMY:
    Current account, growth, rates: link.reuters.com/nan89t

    Rupee, bonds, implied FX yields: link.reuters.com/gaw89t
    Import cover: link.reuters.com/suv22v
    VULNERABLE

    In the fiscal year that started in April, stocks have attracted a net $2.3 billion in inflows, but if that changes India could find itself with a balance of payments deficit. Debt has seen a net outflow of about $5.7 billion.
    Stocks account for a whopping $220 billion of foreign holdings in India, according to Bank of America-Merrill Lynch. Debt makes up a comparatively small $81 billion in foreign assets, government data shows.
    India ran balance of payments (BOP) deficits in 2008/09 and 2011/12. It posted a small surplus of $3.8 billion in the 2012/13 year that ended in March, but some economists expect it to slip back into deficit this fiscal year.
    All up by the end of this fiscal year, India needs to refinance or repay $172 billion of liabilities -- such as foreign borrowings, trade credit, and private debts -- which is almost 45 percent of its overall external borrowings and equivalent to 59 percent of its reserves.
    "We are vulnerable now," said Abheek Barua, chief economist at HDFC Bank in New Delhi.
    "If this vulnerability manifests into one large default on domestic loans or external commercial borrowings, it could threaten a sovereign rating downgrade and that could trigger a balance of payments crisis," Barua said
    Any corporate default is seen as more likely to be on domestic debt, but the risk is it would spoil the broader investment environment and hit already-slowing economic growth.
    Investors are hoping the appointment of Raghuram Rajan, a former chief economist of the IMF, as RBI governor from September helps accelerate measures to stabilise the rupee.
    Rajan has spoken of a sovereign or quasi-sovereign bond issue to attract dollar inflows, widely seen as an effective if costly stop-gap measure to support the rupee. Outgoing Governor Duvvuri Subbarao has spoken against issuing sovereign bonds.
    CURRENT ACCOUNT DEFICIT
    While the government has put curbs gold imports and taken other measures to narrow the gap on external accounts, investors and economists believe much more is needed to attract long-term funds to help balance the external accounts.
    The current account is in persistent deficit -- there was a shortfall of $88 billion, or a record 4.8 percent of GDP in 2012/13 -- but there are limits to what can be done to lower it.
    The bill for oil, the largest and most inelastic of India's imports, was $169.4 billion in 2012/13, and a weaker rupee will only push up the cost further.
    HDFC Bank's Barua expects India to end up with a balance of payment deficit of $12 billion to $15 billion in 2013/14.
    "We are not close to the crisis situation seen in 1991, but it cannot be ruled out of a realm of possibility," he said.
    (Editing by Tony Munroe and John Mair)
  4. ramjn

    ramjn Staff Member Janitor

    Messages:
    5,243
    Chennai
    Linea 1.3
    Worrying situation. But, the Govt is defending to death that India is indeed shining.
    1 person likes this.
  5. Yep, heard lot of Bharth Nirman slogans in Radio, we may not be able to drive cars after 6-7 months.
  6. theblack

    theblack Esperto

    Messages:
    2,188
    Bangalore
    this is a total failure of the system that has no excuse . A PM who is an economist and this is what we get?
    how in the world does FDI improve our situation ? as always more questions are left unanswered .
  7. Market VS UPAII
    source Market vs UPA: Why the rupee is in self-destruct mode - Firstpost
    The UPA government’s credibility on the economy has fallen so low that it ends up achieving the exact opposite of what it intends.

    It opened up FDI in many sectors, but nothing is coming in. It shackled gold and told us it was a worthless metal. Gold prices have just shot past Rs 31,000 per 10 gm. This has reassured investors that there is real value in gold and the government is talking nonsense. The Reserve Bank placed new curbs on external remittances to shore up the rupee, but the currency is sinking further. P Chidambaram told us the other day that the 770-point fall in the Sensex last Friday was because our markets were closed for I-Day. Well, on Monday the index fell by a further 290 points to tell him that he is wrong.
    The government says it wants lower interest rates, and then decides to squeeze short-term liquidity to strengthen the rupee. Net result: interest rates have shot up so fast, this is sure to kill whatever growth there is. Money market instruments are earning over 11 percent, and five- and 10-year bonds are reporting yields of 9.5 percent to 9.25 percent respectively. These rates are higher than what the State Bank pays its depositors right now. Worse, when interest rates rise, the value of bonds held by banks in their portfolios falls – which means banks are starting at further losses beyond bad loans. They will need even more capital from the government – just when it is short of money.
    Sensex_Markets.jpg The truth is that the markets don’t believe the UPA anymore: Reuters image

    If the UPA has still not got the message, here it is: the market does not believe you anymore. The more you try to talk up the market, and try to prove you are doing “reforms”, the less the market is willing to believe you. This is because the market knows that in an election year, the damaging bits of policy – involving food security and low energy prices – will be in place till the next government comes over.
    The market also knows that the real economy is hurting – and hurting badly. In fact, the drop in the Sensex grossly understates the problems faced by corporate India. Since the start of the year, the Sensex fell 5.76 percent, but guess how badly the capital good index fared: down 34 percent. The BSE Bankex fell 27 percent and the Midcap Index 25 percent.
    In short, the headline figures for the crash in market indices underestimate the carnage in stocks, and the destruction of investor wealth. The Sensex crash relates only to the best of the best in India. The small and medium companies – the companies that actually create jobs – are simply bleeding profusely. They are probably laying off people and spreading the gloom even more.
    Is there anything the government can do to make the markets believe it is up to something good?
    Yes, it can do three things – none of which appears politically feasible right now.
    First, it can stop trying to prop up the rupee. Once the market knows this will happen, the rupee will find its own level. Even if it falls to 70 to the dollar, it will rebound, since at these levels, there is good value in India. Exports will boom, and imports will be crunched – which is exactly what is required to get the current account deficit down, and stabilise the rupee. If the rupee doesn’t fall now, it will stay weak for prolonged periods of time, and damage the recovery of the economy.
    Second, it has to raise diesel prices now – and steeply. Given the rupee’s current level and global crude prices, the loss per litre is Rs 10.22 – even higher than what it was when slow monthly increases in market pricing were announced. If diesel prices were to be raised in just one or two steps this month and the next, and prices fully deregulated thereafter, the markets would take the government very seriously. Despite the obvious hit growth will take, the markets will see decisive action in this and slow down the rate of decline. The fiscal deficit would crumble, and FIIs will return to the markets. Growth will rebound once the economy adjusts to the new rates. After the fiscal deficit is fixed, interest rates can be easily brought down to levels where growth can resume. If it does not do so, and the US and eurozone economies revive, where do you think crude prices will be? Higher or lower? Time is running out for the UPA on diesel.
    Third, the government could announce that it will implement the Food Security Bill only after the fiscal deficit reaches – say – 3 percent of GDP. It can adopt the bill with this proviso, or mandate a coverage that includes only the 22 percent of people below the poverty line (and not 67 percent of the population). This political sacrifice by the UPA can be the most powerful message it can send to the markets of honest intent.
    But will the UPA do any of these things? The market does not believe so, and this is why it is rejecting every half-measure of reform with the disdain it deserves.
    Granted, no government in an election year would want to take such drastic steps. Then what is the option?
    There is one Brahmastra still available to the government: call an early election. If this happens, the market will hold steady as it believes that change is at hand. But this is precisely why the UPA may want to do more damage and cling to power, even if it sends the rupee down further, gold up further, and interest rates higher.
    The choice before the UPA is clear: self-preservation or economic mayhem.
    2 people like this.
  8. naveen2cool

    naveen2cool Superiore

    Messages:
    646
    Chennai
    Situation is turning worse day by day :(
  9. No faith on our govt decisions is adding fuel to the fire for foreign investments...
    We are not far from what spain and greece have already ended up in..

    Sent from my GT-N7100 using Tapatalk 4 Beta
    1 person likes this.
  10. The biggest drawback I think is our countries decision making backed by overly qualified people, they never had a backup plan for a situation like this(too ignorant to even be prepared for the worse)
    Within a few months india slid from the whighly esteemed trillion dollar economy position globally..

    Sent from my GT-N7100 using Tapatalk 4 Beta

Share This Page