News

Today (28^th August 2013) in the morning as soon as the markets opened, the Indian Rupee (against US dollar) and the Indian  stock market index (Sensex) falling freely caught my attention. Both fell for about 2 hours continuously at a rapid pace until the central bank in India (Reserve Bank of India) intervened by selling dollars in the market and arrest the fall which made my popping eyes come back to their normal positions.

How a falling Rupee would be good or bad to the Indian economy? Prima facie, for a country with a very high current account deficit (CAD), falling Rupee looks good for exports and to economy to some extent. But the fall of rupee cannot immediately translate into reduced CAD that too when we are talking of 20% drop in the value of Rupee in just 3 months time. Our CAD has grown to alarmingly high levels for any sensible nation be not bothered with. The obvious result of free falling rupee is curtailment in imports which would reduce consumption and industrial production which will hit the economy badly and that’s what precisely happening in India. The growth rates are also falling freely like Rupee and hence the effect the stock market.

Looks like Indian government got everything wrong for the past 2+ years and the results are obvious now. What’s is the way ahead from here. Even though a few harsh steps can be taken to try and revive the economy, the possibility looks remote due to impending elections in the next year. Cross your fingers and hold your purses tight.