The Government of India appears to have run out of its wits, for it could not stop the spiralling inflation, neither it provided jobs to the unemployed. Industrial production has almost been at the standstill; the prices of petrol/diesel continue their upward trend and the rupee has literally gone out of government control. It is in such panicky situation, the Commerce Minister suggests to pledging gold, and the Petroleum Minister broods over closing petrol pumps in the night to save expenditure. When the common man opposes such moves, the Ministers defend themselves saying that such suggestions had come from the people. The economic experts say that the country is back in 1991 crisis period while the Prime Minister assures the nation that the situation is better than 1991 and well within the control of the government. One fails to anticipate what miracle the economist Prime Minster and Finance Minister would resort to for saving the rupee from its present labyrinth of devaluation.
However, history tells us that weak rupee can be converted into an opportunity provided the government acts with better understanding of the situation. For example, Japan turned the tide in its favour when the yen was weak in the 60s. In a decade Japan increased its export four times and established its supremacy in the global market. China too, in the mid-80s followed Japan and used the opportunity of weak yuan to fill the world market with Chinese goods in just ten years time. Today the Chinese goods are dominating the markets globally. That is China converted its weak currency in its strength and created employment opportunities.
But the Government of India has adopted the import-based economy since past decade resulting in near blockade in industrial production and loss of jobs rendering the youths jobless. Till date the Government used to claim rise in GDP. The GDP which used to be around 8 per cent till now, has come down to 4.4 per cent in the first quarter of the current year. If the Government gives a serious thought to the current situation it would find a ray of hope emerging out of this dismal economic picture. The weakness of rupee has ushered in a massive change in India. India is now compelled to adopt export-based growth. Any economist would have suggested devaluating the rupee to boost export but the markets have already accomplished that job. In July last when the imports were reduced by 6 per cent the exports increased by 11 per cent. In the first quarter of the current fiscal, the export of electrical and electronic goods registered a growth of 2 per cent. Taking a clue from this if the government reviews its production policy and focuses on export-oriented policy it could increase the employment opportunities and create its impact on the global markets by providing cheap goods as compared to other world markets. This is a unique opportunity the weak rupee has presented to India right now.
In the export market, the weak domestic currency happens to be the great strength. We can pour cheap goods in to the world market and dollar is not the only parameter to gauge the increase in exports.It depends on which competitor country has a weak currency. In the past six year the rupee has fallen 74 per cent against yuan while against dollar it was only 38 per cent. Because of this, even with weak rupee, India is still superior to China because of this very reason Indian exports are still cheaper as compared to Chinese. According to one study, after 2007 India has scored over China in terms of exports of goods. That means, India has the best opportunity to shine in export markets of the world. If we succeed in increasing our exports with the help of weak rupee we would gain more dollars easily and thus strengthen our foreign capital. The pressure on rupee would ease, new investments would be made in export and employment opportunities would also be increased.
(The writer is zonal organising secretary of BMS)
Stop blame game
Blame the Opposition! Blame the Supreme Court! Blame the US Federal Reserve! Blame Syria! Dr Manmohan Singh will blame anything and everything but himself and his regime, both for the corruption over which it has presided and its sheer ineptitude.
Much has been said of the nauseating corruption of the Manmohan Singh years; much more needs to be said. But why do his praise-singers in the media still laud the Prime Minister and his economic team as “brilliant” despite all the evidence to the contrary?
Let us take that latest “achievement” of the UPA, the Rahul Gandhi inspired Land Acquisition Bill. A key provision is that no land will be acquired for a private project unless 80 per cent of the people owing the land agree to sell (or 70 per cent for public-private partnerships). To understand Indian industry’s dismay look at the2009 election returns.
Sonia Gandhi won 72.23 per cent of the votes in Rae Bareli. Rahul Gandhi won 71.78 per cent of the votes in Amethi. Pranab Mukherjee, the then Union Finance Minister and Leader of the House (Lok Sabha), won 54.24 per cent of the votes in Jangipur. Sushil Kumar Shinde, current Leader of the House (Lok Sabha) and Union Home Minister, won 52.15 per cent of the votes in Solapur. P Chidambaram, the present Union Finance Minister, won 43.13 per cent of the votes in Sivaganga.
All they had to do was to convince people to hand them power for the strictly limited period of five years. Not one of the five touched the 80 per cent mark. How is private industry supposed to convince 80 per cent of the people to sell their land for all time to come? And how is industry supposed to come up in the absence of land availability?
How about the tumbling rupee?
The Prime Minister blames the US Federal Reserve. Its policies, he says, brought down not just the Indian rupee but also the Indonesian, South African, and Brazilian currencies. Dr. Manmohan Singh should have looked closer home, at Bangladesh.
On October 31, 2012 one American dollar bought 81.27 Bangladeshi takas.
On 1 July 2013 that same American dollar was worth 77.70 takas.
On 1 September 2013 the greenback bought just 77.47 takas.
It is marginal but the taka has actually risen against the dollar.
Did I mention that Bangladesh”s GDP is set to grow by an estimated 6.1 per cent while that of India will be between 4 per cent and 4.5 per cent? Based on the GDP numbers and the remarkable stability of the taka, Bangladesh”s Prime Minister, Sheikh Hasina, is a better manager than our ‘economist Prime Minister’.
Bear in mind that Bangladesh”s GDP growth is based upon the solid ground of manufacturing—particularly textiles—rather than playing with inflows of cheap money.
At this point it is necessary to rewind half a decade. Ben Bernanke, chairman of the US Federal Reserve, is a student of the ‘Great Depression’, and knows the havoc caused by the freezing of credit. Determined not to repeat that error, Bernanke started pumping enormous amounts of money into the economy, up to $85 billion a month.
Let us put this in perspective. As of August 23, 2013—the latest figures released by the Reserve Bank—India”s foreign currency reserves were $277.72 billion. The US Federal Reserve, while keeping interest rates at historically low levels, pumped out more dollars in just four months.
Some of that flood of money washed up on Indian shores as investors gambled in the Indian market and Indian business houses borrowed from abroad. That, many suspect, is what kept the Indian GDP numbers respectable.
On June 19, 2013 Ben Bernanke said that the US economy had revived to the point where the Federal Reserve would ‘taper’ its money-pumping, from $85 billion a month to “just” $65 billion a month. That was enough to spook India.
Why didn”t it also spook Bangladesh?
The answer is that the foreign funds flowing into our neighbour had gone into productive investment like putting up factories, not into playing the stock market. Once you put up a plant it means that you are planning to be around for years, probably decades; money put into the stock exchange can be withdrawn, literally, the same day.
Factories, it goes without saying, also create jobs. They may be dirty jobs but they help to put food in the belly – and American dollars into the reserves. India”s current account deficit is estimated at approximately 4.8 per cent of our GDP; that of Bangladesh, according to World Bank data, will be less than one per cent, an estimated 0.78 per cent of its GDP.
The low interest rates offered in the United States (and other developed economies) also encouraged Indian business to borrow from abroad. But now they have to repay the loans and the falling rupee has thrown off their calculations. It is whispered that roughly one quarter of the Indian borrowers simply do not have enough cash in hand to repay the loans they took in the boom years.
Why didn”t foreign money find its way into building factories in India too as it did in our neighbour? The simple answer is that the Manmohan Singh government went out of its way to alienate business.
Is this going to give confidence to any investor?
Now even Indian business houses believe it is better to invest outside India. The information technology sector is one of the few still propping up the Indian economy, and Tata Consultancy Services (TCS) is one of the crown jewels. Every major Indian business house is looking elsewhere in Asia, or even in Africa. If they have not already invested outside India they have drawn up the blueprints to do just that. And that is not just because other nations are more welcoming to corporate houses, it is also because there is a huge hidden cost to doing business in India— corruption.
Ten years ago, at the end of the Vajpayee era, India dreamt of competing with the United States and China. Now, at the fag end of the Manmohan Singh years, we are being shamed by Bangladesh on every economic parameter—currency stability, GDP growth, and the current account deficit as a proportion of the GDP.