When INR touched the level of 56 against 1$, the first sms I received “Ab Tak – 56”. One of the thriller movie in Bollywood. The other msg that I received which is now trending in twitter the famous dialogue of an Indian flick “Amitabh Bachchan has demanded at all payments to him be made in dollars instead of INR. Kyunki main aaj bhi gire huye paise nahi uthaata”
The Rupee has been trapped in a vicious circle, the free fall is on the roll, steep and breaking new lows. When I was writing this article it is trading at 56.22 against the dollar. It is already set to fall more as the 12 month non-deliverable forward market is pricing in a move towards Rs59.5 indicating further downside.
When the prices of petrol revised yesterday up by Rs 7.50/ litre people where on streets all over the places in different parts of this country. The trap is that the weak currency hits importers hard, particularly India’s oil companies that buy crude overseas and have to sell fuel at state-controlled prices. That in turn leads to bigger government fuel subsidies, stretching the fiscal deficit further and which is a major worry for the country.“India is paying the price to protect the rupee by using the reserves and therefore is creating an imbalance that will be difficult to sustain,” was quoted by an economist to confirm the above Reserve Bank of India sold a net $20.1 billion in the seven months.
The economic problem of India are very real, the fiscal trade , current account deficits have widened , inflation very buoyant. As India imports 80 per cent of its crude oil comprising 30 per cent of its import bill while gold takes up 10 per cent. That has sent India’s current account deficit souring along with prices and demand.
As I have been quoting from some time that something gonna happen, during my last posts Exchange rate and Democracy and Wake up call for India INR 55 @ 1$. When ever the reforms in the country have happen they come at the cost and the middle class always bears the burden of them as may be more to come like decontrol of diesel and urea prices and removal of disincentives for financial savings would cut the current account deficit by curbing imports of crude, fertiliser and gold. These moves would contain inflation as well, slashing the fiscal deficit and, with it, excess demand.
The India growth story do not need rocket science its has to be a more discipline political will.