The Indian rupee is making headlines today, but mostly for the wrong reasons..!! Its value has been falling against the US dollar steadily and since the beginning of 2012, it has fallen 23 per cent, closing at a record low.According to Mr.Manmoham Singh,the government has no commitment to stop the country’s slipping economy. Even the person who has obtained doctorate in economics was unable to control the situation
About a month ago when the rupee was at 48,neither the Finance Ministry nor the Reserve Bank of India (RBI) can do much to stop the fall.There are several reasons behind this pessimistic view. The most important factor is that India’s deficit in foreign trade – excess of imports against exports – has ballooned to an all time high of $185 billion in 2011-12, a whopping 56 per cent more than $119 in 2010-11.The culprit is the import of crude oil, petroleum products, gold, coal, fetilizer etc. Oil imports at $152 billion, for instance, accounted for 31 per cent of the total import bill.Further, the impact on imported inflation is expected to increase dramatically considering India imports about 80 per cent of its oil requirement and about 800 tonnes of gold annually. In this scenario, monetary policy making by the Reserve Bank of India (RBI) at its next meet will become even more challenging.
But there are no measures in sight that could reverse this trend right away. For instance, FII flows that could have brought in US dollars have dried up due to the under-performance of the Indian equity markets, while bond yields too have been volatile, leading to overall outflows.Some of the options to control this situation is : enlarge export basket, diversify export destination, cut down imports to bare minimum, decontrol all oil products, lower inflation and initiate reform to make investment climate attractive.The RBI can also directly sell dollars to oil companies, who are large buyers of dollars for oil imports, without affecting the market price.Really it is high time to adopt something which really helps.
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