Free Fall for Rupee: Govt Policy Failure

The free fall of rupee is a direct consequence of policy failure of the UPA Government on the economic front. To say that the foreign direct investment is not coming because of ‘negativism’ spread by the CAG reports on scams is a travesty of truth. Two senior ministers of the government are on record to blame the CAG for the current crisis. One should remind the government and the ministers that the scenario on the domestic front is equally bad as domestic investments are also not coming.

There is a crisis of confidence in the investors that is holding the investment besides liquidity crunch due to faulty policy of the Reserve Bank of India which has tightened screw on cash flow.

The government desperate measures like RBI selling dollars to arrest the fall of rupee has not helped. Today the rupee hit a record low of 65 for 1 US $. To say that exporters are happy is also wrong since in the long term the volatile rupee is not going to help the exporters in India whether it is in IT sector or automobile.

The Current Account Deficit (CAD) has increased to 10% of the GDP which is hitting the foreign exchange reserves. It has increased tenfold in the past five years. The CAD is estimated at more than 80 billion dollars at present.

The government allowed generous import of luxury goods like cosmetics, cars, foreign liquor, electronic goods like television and computers. There is no custom duty on bringing goods worth Rs. 35,000 from  places like Dubai, Bangkok and Singapore. Flat screen LCD and LED televisions are available in foreign markets at half the price in India. For instance 32 inch LED branded television can be bought for as cheap as Rs. 12,000 whereas in Indian market the price of the same set varies between  Rs. 30000 to Rs. 35,000. Many people who frequently visit these cities have made it a lucrative business. They buy cheaper sets abroad and bring them to India without paying any duty and sell them in India at higher price but less than price in Indian market making profit. It is sort of smuggling of the goods with government approval.

The government has woken up now and has imposed 30% custom duty on television sets brought from foreign land which will come into force from 26^th August. Similarly, the government has increased import duty on gold to check outflow of dollar without realizing that it will increase gold smuggling in the country since the lure of yellow metal will not die even if prices are high.

Economic experts are of the view that widespread corruption in the country has shaken the confidence of the investors who find government favouring only some select group of industry and business houses who have good political links in the corridors of power. The policy of showing favours to few and ignoring genuine entrepreneurs and investors has dented the investment environment in the country. The result is before us. I can only hope that the government even at this stage would revise its policy and take measures to instill confidence in the investors- foreign and domestic- to reverse the trend.

~R. K. Sinha