Fall from Grace
In case no one noticed, Stock markets in India have been painted red with the incessant bleeding of the Indian Rupee. Latest figures show the Rupee plummeting to new lows every hour with the latest being at Rs. 72.97 for 1 dollar, the Indian currency has been labelled the worst performing of all Asian countries. Gas prices have been skyrocketing with 82 Rs. for 1 liter of gasoline which has also contributed to the near ‘crash ‘ that the currency is facing. We didn’t even notice the subtle fall since late July and now that everything that could go wrong is going wrong at once it almost feels the economy has been set on fire. The issues have also turned political in addition to economic stress with opposition seeing it is like a weakness to be exploited for ousting the current Modi administration. In the time that government begins to comprehend and pinpoint what it is that is going wrong, the country including its citizens, Companies, Stock owners suffer with investors losing over 2.72 trillion rupees. Put that in crores the amount comes out to be ₹2,72,549.15 CRORE which is not a small amount by any means.
Why is the Rupee falling?
The Indian currency has seen its fair shares of highs and lows but the lows have never been lower. So what exactly is causing the Indian currency to perform so poorly against the rest of Asia and the US dollar? Not to paint a picture of gloom, doom, and despair but the currency has lost its value by 11% in 2018 itself it should be an alarming wake-up call if not a catastrophe waiting to drown the economy.
Basically, Rupee is falling against the dollar only because the demand for dollars is in stark excess to its supply. The supply of dollars has been low because of our export bill being much shorter as compared to imports. This could either be because traders haven’t completed their IEC registration or because as a whole the Make in India project hasn’t yielded the strong results that were expected.
Added on top of that the “honourable” President of the United States Mr. Donald Trump has been declaring trade wars against almost everyone in Europe and many Asian countries by cutting subsidies, it seems like the fall of the Indian rupee’s fall was inevitable anyway.
Weak Efforts from Administration
While India has never been a country to attack first maybe it would be better if the government attacked the impending internal problems and maybe we could have been in a better position. However, the reactive approach from the government towards the disgraceful fall of the rupee has failed to yield too many results. The sweeping changes in the volatile taxation system in India coupled with demonetization post-effects have been nothing short of catastrophic and have contributed to the rupee seeing new lows. Although, the government is improving the taxation system with reforms to the GST registration and GST return procedures.
Let’s take a look at what measures the government has taken so far to curb the fall.
- The rules for External Commercial Borrowings (ECB) on foreign currency loans have been relaxed for manufacturing companies.
- Masala Bonds rules have been relaxed to ease the process of raising overseas debt in rupees rather than any other currency
- Infrastructure Firms are no longer bound by minimum hedging requirements for raising ECB.
However, even after all these measures and fresh selling of dollars, the rupee seems to be plummeting into oblivion with no end in sight. This begs the question: Is the government doing enough?
Before we jump to unrealistic conclusions and start pointing fingers at the government for not doing enough let’s take a birds-eye view on the matter. Indians in their day to day to life are suffering and that needs to stop first and foremost. We have seen that the government is opening up and relaxing many stringent laws and restrictions in a pursuit to free the currency from its somewhat dramatic fall. Even after so many efforts if the rupee is still looking down, maybe we need to point fingers elsewhere. Many of the reasons for the devaluation of the rupee can be attributed to external factors and how the government of the United States plans to continue their business and policy dealings. There is no need to panic and be out with the calculators just yet, like everything this just needs time to stabilize and we’re sure that the government will weather this storm soon enough.