 |
|
||||
|
|
|||||
|
|
Follow AllBankingSolutions @ 
|
Understanding Falling Rupee - A Self Made Crisis and Now Aggravated By Mismanagement of Government
by
Rajesh Goyal
|
Ads by Google
Quote of the Day : Prayers, Dreams, and Seeds are similar in nature. All have nothing within but have the potential of creating everything.
I have been watching, like most of my countrymen, the fall of rupee with disbelief. Although some of my earnings are in US$ from Google Ads, yet it was never comfortable and fall in our currency never brought smile on my face as I am aware of its consequences in the long run.
However, when I received a joke, sent by a teenager, I could not resist to smile. Let me share the joke before I dwell on this serious issue of falling Rupee. “There are underwears available under the brand of Dollar and Euro. Do you know why there is no underwear (UW) under the brand name of Rupee? …. Kyonke Pata Nahi Kab Gir Jayee …… (Difficult to predict when it may fall).”
The youngster must not have known about the economic consequences but even a kid is aware of fact that if UW falls ‘hamari koi izzat hi nahin bachti (our whole honour falls) ’. It will not be very much wrong to draw a parallel that this sudden steep fall in INR vs Dollar has shamed all of us at international level. It is something like Indians being stripped off in the public. Earlier, I have written an article on Rupee Appreciation and Depreciation, which was liked a lot by newcomers. (That article can be read by clicking on the following link -What is Rupee Appreciation & Depreciation ?). However, in last few weeks I have received number of emails wherein our readers have been asking for more clarity and reasons for these sudden developments leading to huge depreciation of rupee. Thus I thought of sharing some of my knowledge on such a serious issues and make this affair simple so that many youngsters, who are not able to comprehend this difficult subject, can at least feel comfortable about their knowledge when they read about this news in daily newspaper.
· A basic question frequently asked is, what determines the exchange rate between two currencies, say USD and INR. In simple terms, the basic principle which determines the exchange rate is the market forces of Demand and Supply, like the prices of Onions. Why prices of Onion have gone up in August 2013, as there is more demand then the availability of supply. The moment supply of onions improves, the prices are likely to come down. Thus, we can say that now a days, there is greater demand for dollars as compared to INR. Foreigners who are withdrawing funds from India are demand more dollars in lieu of their INRs.
Ads by Google
· Of course, there can be other reasons too for rise in prices of onions like hoarding by traders. The same is true even for USD-INR rates. Some traders may be playing the game of speculation (in currencies we do not call them hoarding, but use big jargons like speculation, arbitrage, derivatives, options, forward trading etc. etc. These words are used to ensure that a layman can be befooled like our Pandits used to recite Sanskrit salokas to show that common man is ignorant).
· Another factor which affects the currency rates is the market sentiments. This too is playing a major role in the August 2013 USD-INR crisis, when USD has crossed INR 65. The poor management of our current account deficit, complete paralysis of policy making, huge amount of corruption in 2G, Coal Scam, have dampened the market sentiments and foreigners are afraid to continue in this environment, let alone bring fresh investments. Thus, the fiscal deficit is increasing which further shakes the confidence of foreigners in INR.
· Ignoring Fundamental Rules Earlier and Now Pressing Panic buttons by RBI has worsened the situation. At AllBankingSolutions.com , I have been strongly advocating at least for last two years that banks should stop selling gold coins. Our views were rubbished by almost all CMDs,EDs, GoI etc. However, by the beginning of 2013, the matters have worsened and GoI wanted to ban the same. However, it failed and it was only when the water has gone above the nose that GoI admitted its mistake and put a blanket ban on import of Gold coins. However, by this time it had already damaged as billions of black money was converted into gold and country paid through nose for gold imports. Only today I have seen an article in TOI, which talks about love of rich (I mean block money ) for not only gold plated utensils but the humble toilet commodes. GoI may not admit but a majority of the funds invested in gold were black money of politicians. Now these politicians are sitting pretty on gold stock (even in toilets some of them may be sitting on gold plated commodes!) and country is on the verge of bankruptcy.
· Now GoI and RBI are taking immature steps which are further damaging the international market sentiments about the level of crisis. The recent ban on import of LCD / LED TV is only an immature step as it has dampened the sentiments but is likely to save only peanuts for the country’s foreign exchange.
Now question arises what is the solution to the present crisis. Frankly speaking, I must admit that we have entered a volatile phase and it is likely to continue till the next Lok Sabha elections are over and a stable government takes over. We may see some temporary improvements, but it is highly unlikely that USD-INR will go back to Rs 55 level till elections. Chances are that it may even touch Rs 70. GoI has put itself in this peculiar situation towards the end of its tenure. Whatever hard steps it will take are likely to hit its election prospectus, and what are soft steps it takes will be bad for country’s economy.
Let us watch with crossed fingers and hope no new big scams are unearthed in next few months. Let me end the article with another j….
A journalist, who was fed up with the economic announcements, decided for a change to ask views of PM Manmohan Singh on sports. He asked “Dear PM, which game do you like”. PM replied “Cricket when played in India”. Journalist further probed, which part of Cricket you like, I mean batting or bowling ? Our great economist PM replied “No, No, I like the toss at the beginning of the match in India”. Journalist was amused and asked “Why, only toss Sir”. Manmohan smiled for the first time and told “Because it is the only time when I see our Rupee going up !”.
A lot of countrymen may be praying that we should not have in future a great economist with great policies and great thinking as PM, or else we may have a new unit of counting – millions, billions, trillions and onions
|
