Tuesday, December 13, 2011

The falling rupee - domestic policy paralysis or global clues?

Let us look at the falling rupee in the context of inflation. Pare it with the value of rupee - you will notice that the fall is fatal. There is no dispute that there is decision deficit along with the rising fiscal deficit. We have to rise above petty politics and create conditions conducive for attracting investors. To blame it all on FDI - retail is looking the problem through a coloured glass. There is decline in IIP on a continuing scale and this is in the backdrop of unceertain future in the farm sector - what with the rising rate of suicides of farmers and crop holiday in one of the leading agrarian states in the country. Let me now take the point of Euro crisis and its impact on Indian economy. Despite our not so strong exports to Euro Zone, the refusal or absolute lack of resolve to tackle fiscal indiscipline by the Euro Zone with London,Berlin and Paris ganging up against any reasonable support clearly direct a worse recession in the next six to twelve months. This is bound to adversely impact, notwithstanding the stable domestic savings and investment ratios thus far. While it would be injudicious to provide the sort of stimulus that the Government announced in 2008, the Government should create conditions for a steady flow of investments in infrastructure sector. The country has blurred in continuing to support thermal power in the context of unsupporting coal reserves and has done little to create a power grid of varietal sources of energy. Energy risk management speaks volumes of the failure of government economic pundits. This has scope for drastic improvement and this does not depend upon global recession. It is time that the Government wakes up to realities. Whatever the RBI could do has been done. It is for Government to do what it has to do to contain inflation and brace up for better governance, both political and economic.