Sunday, August 25, 2013

Falling Rupee Is Creation of Government And Aggravated By Government

                                       Understanding Falling Rupee  -  
                                                 A  Self Made Crisis 
                            Now Aggravated By Mismanagement of Government--
                                              BY Rajesh Goyal 

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 theexchange 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.

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 , 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 electionprospectus, 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

My Views on Fall of Rupee are as below

Causes AND Remedies Of Indian Rupee Fall

India is facing the current account deficit and continuous fall in rupee value compared to Dollar despite several steps said to have been taken by learned Finance Minister and economist Prime Minister Mr. Manmohan Singh. Dollar has become scarce commonality and the position of trade balance and that of reserve is almost same critical as it was in the year 1991 when Indian Government pleaded and accepted free trade regime in the name of Liberalization and globalization.

 But in my view, the rupee fall is not due to wrongs acts of last few days of few months but is the consequence of bad policies followed by Indian government and due to good policies persecuted in bad way. Government of India has failed to sustain good policies of the past and failed to properly monitor and modify the new polices to keep trade balance in good health.China is surplus in trade balance whereas India is always in deficit. Why?

India could not increase exports not could it reduce Imports. Dollar is consumed in following avoidable imports or spending.

First and the foremost India government have wasted huge amount of Dollar on import of Gold and crude oil.

And the most unfortunate part is that the government has given absolutely free hand to importers to import Gold and crude oil as much as they like without keeping in view the foreign exchange reserve and probable growth in export. Government never thought it necessary to restrict import of gold and that of crude oil to save Dollar. Only in the recent past few weeks that government took step to save dollar by restricting import of gold and by imposing higher duty on the same.

Government in the same way could have forced or plans ways and means to curtail and reduce fuel consumption by putting restriction of sale of luxurious vehicles and two wheelers. They could save fuel on restricting visit by flight by government officials.

They could have similarly stopped selling of gold in free market or forcing jewelers to sell Gold only by payment through account payee cheques and not by receipt of money in cash. This could have helped in reducing gold import to a great extent because black money could not get opportunity to change its shape as it is happening now.

Business houses having huge black money converted the same into gold, silver or real estate. Politicians and  officials who earn crores in bribe and through unfair means keep the same mostly in form of gold because of difficulty in compliance of strict KYC norms n banks for opening account and then parking black money there.

Thousands and millions of  Indians are going on foreign tour to countries like Singapore, Malasia, Dubai, Neuyork , England and many other countries and each one spending at least 2000 to 200000 dollar and if we calculate the total outgo it will be big amount. It is a slow poison.

It is painful and shameful that state governments and central government have failed to make Indian tourist place attractive for foreign visitors and earn dollars. Before 1991 India used to earn huge foreign exchange only by foreigner visiting India.

Indians going on tour to above mentioned countries bring with them permissible items like LCD, LED TV laptop etc and thus spending millions and billions of dollars per year.

Indians are allowed to remit upto 200000 dollar without any question and they are allowed to spend considerably high amount.

Indians are buying properties at foreign centers and thus wasting their hard earned dollars .

Indian industrialists have slowly reduced their expansion programme in India and given more focus on setting up their project in other countries thus wasting hard earned dollars. Foreign Institute are investing less in India compared to Indian companies investing in foreign countries.

Indians are importing not only readymade garments, coal, steel, iron etc which are profusely available in India. even goods like mobile, bicycles, toys, luxury cars, AC, Freeze and many other house hold goods which can be produced and which are produced in India in considerably large volume. Such unwarranted imports not only waste foreign exchange earned by exporters but kills the future of domestic industries too.

Students are going abroad for doing MBA, MBBS or other courses and spending millions and billions of dollars or other foreign currencies ( mostly in form of dollars ). Before the era of Liberalization and globalization, Indian government used to earn huge volume of foreign countries by students coming to India for higher education and by foreign tourists coming on tour to India but the opposite is happening when Indians are going abroad for study and for tour.

It is painful and shameful that even government offices like banks, pharmaceutical companies, electronic equipment manufacturers etc are using foreign tours and thus wasting dollars to promote their sale. In the past they use to offer free Goa trip or free Mumbai trip but now they offer Free Singapore trip, Free England tour etc.

Banks are spending liberally on bank staff who avail Leave Travel Concession and only due to their blind green signal to escalated and manipulated foreign trip bills submitted by employees visiting countries like Malasia, Thailand, Singapore, England and getting reimbursement of Airfare equivalent to greatest distance between two farthest towns of the country. In this way they too are not only allowing sanction of improper and inflated fake bills, they are thus  promoting improper wastage of foreign exchange.

In this way government has failed to stop increasing trend in import and in reducing wastage of foreign exchange. Our leaders perhaps did not think it necessary to stop waste of foreign exchange even if the rupee starts falling freely in free market. They want to control the trade deficit by surgical methods of certain monetary control without curing the cancer spread in entire system in the name of Liberalization and globalization.

When India is rich in coal and iron mines, India could try to make available the most wanted raw materials like coal and iron by exploring maximum of these items and by selling the same at extra ordinarily low price i.e. at no profit and no loss principle. If raw materials like coal and iron are made cheaper than imported ones and than current domestic rate and if these goods are made available easily to all Industrialists , I hope even the problem of price rise will be solved to a great extent. Unfortunately the large scale corruption in mining of coal and iron ore have contributed large share in public anger against the government.

To add fuel to fire they have done nothing to increase export of goods. Had they focused on increasing manufacturing activity like China, India could have remained pioneer in export of all goods which now China is doing. India used to be number one in export of textile goods in the world but unfortunately wrong policy perused by GOI , textile market is on the verge of total collapse. Similarly India could produce mobile, TV,LCD etc also and could make it so much attractive that foreign made products in this commodities could be reduced to minimum.

Government has not taken any step to increase Bilateral trade between two or more countries in currencies other than used to be with USSR in olden days when it was the  era of FERA and not FEMA

It is sad and much painful that Congress Party led UPA government during their entire tenure has simply promoted flattery and bribery , helped scamsters and corrupt officials  and corrupt netas more than helping Indian industrialists in producing goods for Indians at our own soil.

In this way Indian government has failed on both the score. They could neither increase manufacturing and export and not could they curtail burden caused by imports on the pretext of globalization. In the world, none of the countries other than India is harming their citizen and interest of their country only for the sake of keeping world trade treaty. Even the most developed country like USA also cares for their Citizen first and then any other country or any other treaty.

Now when the current account deficit is going beyond control, when rupee is falling freely in free market and when sovereign rating of the country is likely to be rated downwards by International rating agencies, Indian government is wooing FIIS and allowing almost free FDI in all sectors even compromising with basic and fundamental needs of Indian security and safety of domestic companies. 

It is very much dangerous that Indian government has allowed Indian companies borrowing from foreign banks knowing very well that even the repayment of already borrowed fund will cause much pain to India reserve of foreign currencies. Situation will become more alarming in future if government continues to give green signal to external commercial borrowings. 

GOI will kill future of domestic traders and domestic companies by allowing FDI in retail or by raising ceiling of FDI to the extent of 100% in many sectors.

Until India learn to promote manufacturing and farming, India cannot dream of increasing export and cannot thus dream of contain g trade deficit. 

Congress Party has to stop blaming BJP and NDA for its own failures and stop wasting time in tarnishing the image of BJP or Mr. Modi and concentrate of performance and performance only to win the heart of Indians for good and forever.

Leaders of Congress Party who are wasting their time and energy in criticizing Mr. Modi or his supporters could have taken lessons from its own past leaders like Indira Gandhi or Mr. Jawahar Lal Nehru who established several industries in India by even taking the help of other countries and who created job opportunities for Indians in India itself.

Current brand of leaders are trying to win the election by MANREGA OR Food security bill or by various types of quota or reservation, but they will never succeed in their goal on permanent basis. Indians will never forgive the leaders of congress party who have during their ten year rule have damaged the country in all sphere of life and whose misdeeds and corrupt deeds have tarnished the image of the country in the world.. 

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