Can we stop the descent of the rupee?

No convincing plan as yet.

The rupee is in trouble. Though its strength has mildly improved today (67.37 against the US dollar today from 68.4 on Wednesday evening) it is now one of the worst performing currencies among developing countries. Not long before, as Deutsche Bank recently predicted, the rupee touches 70 against the dollar. Does not seem long at all.

The Indian stock market has tanked. The financial markets seem to have gone into panic mode. Foreign investors have already sold almost $1 billion of Indian shares in the eight sessions through Tuesday and now Syria, with its increasing crude oil prices and the growing fear of a possible US-led military strike against it, has spooked investors further into believing that India’s already large current account deficit (CAD) may be escalating.

As global prices of India’s two biggest exports – gold alongside oil - surge this week, the strong demand for the dollar from banks and importers, mainly oil refiners, is putting additional strains on the rupee.

The US Fed policy, Ben Bernanke’s plans to start quantitative easing by end-2013 and the West in general coming out of recession have definitely hit all emerging markets hard. Ahead of the Fed’s anticipated tightening, currencies in not only India, but also Indonesia and Brazil, among others, have dropped.

It is expected that when the tapering begins, developed market stocks, bonds and currencies will be most preferred. According to Kevin Gardiner, CIO Europe, Barclays, a world in which monetary policy is normalising, decade-long flow of funds out of developed and into emerging markets slows and even reverses for a while.

But the rupees plight today cannot be blamed just on external factors. There are more home-grown reasons as to why, among risky emerging markets, India is being viewed as the riskiest. 

In India, the high CAD is a massive problem. Foreign provisional investments are used to fill the massive CAD, but that’s not a real solution. There is also a huge imbalance between the imports and exports – the former having risen substantially, widening the CAD further. The rising import bill (arising out of gold, which contributes to over 10 per cent of the total bill) has not helped either.

Also, India’s economic boom has been of a peculiar, even lopsided kind. When the money was flowing in, the country’s progress actually deepened the gap between the rich and the poor.

During its economic highs, the growth in the Indian market was largely sector and strata specific. It was the construction companies and the real estate sector, for instance, which truly profited. The IT sector grew exponentially too. But the general boom did not essentially create a larger, multi-tiered job market, to benefit the grass root level. The rise hasn’t been bottom-upwards.

Being one of the poorest countries in the world, the problem is with the basics. Power supply issues, poor infrastructure, lack of education, land problems and just generally oppressive regulations are all keeping foreign investment out of the country. It is all contributing to the rupee’s decline. All this, alongside the huge social discrimination and disparities that are battled by citizens on a daily basis, bringing about further lag in general progress. There is also widespread corruption which is a key problem, unlike the developed world that hardly has lenience towards it.

The Reserve Bank of India is trying to fill the gaps - true. To check the rupee's free fall, the RBI announced a special window "with immediate effect", late on Wednesday, to sell dollars through a designated bank to the three state-owned oil marketing companies – Indian Oil, Hindustan Petroleum, and Bharat Petroleum "until further notice". They need about USD 8.5bn monthly to meet daily foreign exchange requirement. The RBI previously opened such a window during the global financial crisis in 2008.

The Indian government has also proposed setting up a task force to look into currency swap agreements. Several analysts believe this move could reduce market demand for dollars. Infrastructure projects worth $28.4bn have also been approved to try perking up the economy and currency.

The RBI has imposed restrictions on the amount of money that companies and individuals can send out of the country too, as well as increased the duty on gold imports thrice this year.

But the central bank has also been sending out mixed signals. After the rupee hit a low in July, the RBI had raised interest rates to tighten liquidity in the domestic market. That, however, didn’t help. This week, the RBI decided to get more cash into the economy by bringing interest rates down. Optimism around that didn’t last long in the markets either.

Earlier in the week, BNP Paribas slashed its economic growth forecast for India, for the fiscal year to March 2014, to 3.7 per cent from its previous 5.2 per cent. Reuters quoted BNP Paribas saying India's parliament "remains toxically dysfunctional". BNP also said with general election in 2014 looming near, "the government's willingness to instigate a politically unpopular fiscal tightening is close to nil."

It is true that the upcoming general elections are definitely another factor turning the rupee-recovery pools muggy. But one would like to believe that effective medium to short-term plans will be adopted fast, instead of constant ad hoc measures, for any actual progress to come about. Ideally, in the long term the problems will be tackled at the economic and societal foundations – no permanent recovery can be expected otherwise. For now, though, the RBI and the government are, clearly, yet to unveil steps that can convince everyone that the rupee can even be stabilised.

The rupee is in trouble. Photograph: Getty Images

Meghna Mukerjee is a reporter at Retail Banker International

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Who will win in Copeland? The Labour heartland hangs in the balance

The knife-edge by-election could end 82 years of Labour rule on the West Cumbrian coast.

Fine, relentless drizzle shrouds Whitehaven, a harbour town exposed on the outer edge of Copeland, West Cumbria. It is the most populous part of the coastal north-western constituency, which takes in everything from this old fishing port to Sellafield nuclear power station to England’s tallest mountain Scafell Pike. Sprawling and remote, it protrudes from the heart of the Lake District out into the Irish Sea.

Billy, a 72-year-old Whitehaven resident, is out for a morning walk along the marina with two friends, his woolly-hatted head held high against the whipping rain. He worked down the pit at the Haig Colliery for 27 years until it closed, and now works at Sellafield on contract, where he’s been since the age of 42.

“Whatever happens, a change has got to happen,” he says, hands stuffed into the pockets of his thick fleece. “If I do vote, the Bootle lass talks well for the Tories. They’re the favourites. If me mam heard me saying this now, she’d have battered us!” he laughs. “We were a big Labour family. But their vote has gone. Jeremy Corbyn – what is he?”

The Conservatives have their sights on traditional Labour voters like Billy, who have been returning Labour MPs for 82 years, to make the first government gain in a by-election since 1982.

Copeland has become increasingly marginal, held with just 2,564 votes by former frontbencher Jamie Reed, who resigned from Parliament last December to take a job at the nuclear plant. He triggered a by-election now regarded by all sides as too close to call. “I wouldn’t put a penny on it,” is how one local activist sums up the mood.

There are 10,000 people employed at the Sellafield site, and 21,000 jobs are promised for nearby Moorside – a project to build Europe’s largest nuclear power station now thrown into doubt, with Japanese company Toshiba likely to pull out.

Tories believe Jeremy Corbyn’s stance on nuclear power (he limply conceded it could be part of the “energy mix” recently, but his long prevarication betrayed his scepticism) and opposition to Trident, which is hosted in the neighbouring constituency of Barrow-in-Furness, could put off local employees who usually stick to Labour.

But it’s not that simple. The constituency may rely on nuclear for jobs, but I found a notable lack of affection for the industry. While most see the employment benefits, there is less enthusiasm for Sellafield being part of their home’s identity – particularly in Whitehaven, which houses the majority of employees in the constituency. Also, unions representing Sellafield workers have been in a dispute for months with ministers over pension cut plans.

“I worked at Sellafield for 30 years, and I’m against it,” growls Fred, Billy’s friend, a retiree of the same age who also used to work at the colliery. “Can you see nuclear power as safer than coal?” he asks, wild wiry eyebrows raised. “I’m a pit man; there was just nowhere else to work [when the colliery closed]. The pension scheme used to be second-to-none, now they’re trying to cut it, changing the terms.”

Derek Bone, a 51-year-old who has been a storeman at the plant for 15 years, is equally unconvinced. I meet him walking his dog along the seafront. “This county, Cumbria, Copeland, has always been a nuclear area – whether we like it or don’t,” he says, over the impatient barks of his Yorkshire terrier Milo. “But people say it’s only to do with Copeland. It ain’t. It employs a lot of people in the UK, outside the county – then they’re spending the money back where they’re from, not here.”

Such views might be just enough of a buffer against the damage caused by Corbyn’s nuclear reluctance. But the problem for Labour is that neither Fred nor Derek are particularly bothered about the result. While awareness of the by-election is high, many tell me that they won’t be voting this time. “Jeremy Corbyn says he’s against it [nuclear], now he’s not, and he could change his mind – I don’t believe any of them,” says Malcolm Campbell, a 55-year-old lorry driver who is part of the nuclear supply chain.

Also worrying for Labour is the deprivation in Copeland. Everyone I speak to complains about poor infrastructure, shoddy roads, derelict buildings, and lack of investment. This could punish the party that has been in power locally for so long.

The Tory candidate Trudy Harrison, who grew up in the coastal village of Seascale and now lives in Bootle, at the southern end of the constituency, claims local Labour rule has been ineffective. “We’re isolated, we’re remote, we’ve been forgotten and ignored by Labour for far too long,” she says.

I meet her in the town of Millom, at the southern tip of the constituency – the opposite end to Whitehaven. It centres on a small market square dominated by a smart 19th-century town hall with a mint-green domed clock tower. This is good Tory door-knocking territory; Millom has a Conservative-led town council.

While Harrison’s Labour opponents are relying on their legacy vote to turn out, Harrison is hoping that the same people think it’s time for a change, and can be combined with the existing Tory vote in places like Millom. “After 82 years of Labour rule, this is a huge ask,” she admits.

Another challenge for Harrison is the threat to services at Whitehaven’s West Cumberland Hospital. It has been proposed for a downgrade, which would mean those seeking urgent care – including children, stroke sufferers, and those in need of major trauma treatment and maternity care beyond midwifery – would have to travel the 40-mile journey to Carlisle on the notoriously bad A595 road.

Labour is blaming this on Conservative cuts to health spending, and indeed, Theresa May dodged calls to rescue the hospital in her campaign visit last week. “The Lady’s Not For Talking,” was one local paper front page. It also helps that Labour’s candidate, Gillian Troughton, is a St John Ambulance driver, who has driven the dangerous journey on a blue light.

“Seeing the health service having services taken away in the name of centralisation and saving money is just heart-breaking,” she tells me. “People are genuinely frightened . . . If we have a Tory MP, that essentially gives them the green light to say ‘this is OK’.”

But Harrison believes she would be best-placed to reverse the hospital downgrade. “[I] will have the ear of government,” she insists. “I stand the very best chance of making sure we save those essential services.”

Voters are concerned about the hospital, but divided on the idea that a Tory MP would have more power to save it.

“What the Conservatives are doing with the hospitals is disgusting,” a 44-year-old carer from Copeland’s second most-populated town of Egremont tells me. Her partner, Shaun Grant, who works as a labourer, agrees. “You have to travel to Carlisle – it could take one hour 40 minutes; the road is unpredictable.” They will both vote Labour.

Ken, a Conservative voter, counters: “People will lose their lives over it – we need someone in the circle, who can influence the government, to change it. I think the government would reward us for voting Tory.”

Fog engulfs the jagged coastline and rolling hills of Copeland as the sun begins to set on Sunday evening. But for most voters and campaigners here, the dense grey horizon is far clearer than what the result will be after going to the polls on Thursday.

Anoosh Chakelian is senior writer at the New Statesman.