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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Jeremy Corbyn's won a monumental victory - but it's more delicate than it looks

The need for peace on the left is overwhelming. 

It is perverse, absurd even, that in the aftermath of such a monumental victory Jeremy Corbyn must immediately talk of coalition building and compromise. Previous winners of internal struggles – most notably Tony Blair and Neil Kinnock – certainly did nothing of the sort, and Corbyn’s victory is bigger than theirs. To an extent, this is not the victory of one set of ideas but the establishment of a new party altogether – with a completely different centre of gravity and an almost completely new membership. 

That new Labour party – and core project that has built around Corbyn’s leadership – is itself a delicate network of alliances. The veterans of big social movements, from the Iraq War to the anti-austerity protests of 2011, find themselves in bed with left-leaning cosmopolitan modernisers and the reanimated remnants of the old Labour left. All parts of the coalition have reason for hubris, to believe that this new formation – complex enough as it is already, and filled with ideas and energy – can carry the Corbyn project into Number 10 with or without the co-operation of his Labour colleagues and the wider left. 

That vision is a mirage. Labour has undergone the biggest membership surge in its history, and is now the biggest left of centre party in Europe. As John Curtis has pointed out, the party’s support has maintained a high floor relative to the level of infighting and sniping over the summer, in part because of Corbyn’s strong appeal to Labour’s base. But the bleak electoral outlook, compounded by boundary changes, requires us to do more than read out lines from pre-written scripts. We must all, from a position of strength, stare death in the face.

The terms of peace with the Labour right must be negotiated carefully. There can be no negotiating away of internal democracy in the selection of candidates or national policy-setting; doing so would permanently weaken the left’s hand and allow Corbyn’s detractors in parliament to run riot. And in policy terms, Corbyn cannot compromise basic anti-austerity principles – not just because doing so would be a betrayal that would demobilise Labour’s new base, but because the project of triangulation pioneered by Ed Milliband is a tried and tested electoral failure. 

And yet the need for peace is overwhelming. At a grassroots level, Owen Smith’s support was not made up of hardened Blairites. Many of them, unlike Smith himself, really did share Corbyn’s political vision but had been ground down and convinced that, regardless of the rights and wrongs, there could be no end to Labour’s civil war without new leadership. The left’s job is to prove those people, and the politicians who claim to represent them, wrong. 

Labour’s assorted hacks – on left and right – often forget how boring and irrelevant the search for Labour’s soul looks to a wider public that long ago left behind party tribalism. The intellectual task ahead of us is about framing our politics in a comprehensible, modernising way – not creating a whole new generation of people who know Kinnock’s 1985 conference speech by rote. 

A united Labour Party, free to focus on shifting the consensus of British politics could well change history. But the grim realities of the situation may force us to go even further. To get a majority at the next election, Labour will need to gain 106 seats – a swing not achieved since 1997. 

Add to that the socially conservative affirmation of the Brexit vote, and the left’s profound confusion in terms of what to do about it, and the challenge of getting a Labour Prime Minister – regardless of who they are or what they stand for – looks like an unprecedented challenge. That unprecedented challenge could be met by an unprecedented alliance of political forces outside the Labour party as well as inside it. 

In order for Labour to win under the conditions set by the boundary review, everything has to be calibrated right. Firstly, we need an energised, mass party which advocates radical and popular policies. Secondly, we need the party not to tear itself apart every few months. And yes, finally, we may well need an honest, working arrangement between Labour, the Greens, and other progressive parties, including even the Lib Dems. 

Exactly how that alliance would be constituted – and how far it would be under the control of local parties – could be the matter of some debate. But there is every chance of it working – especially if the terms of the next general election take place in the context of the outcome of a Brexit negotiation. 

The starting point for that journey must be a recognition on the part of Corbyn’s opponents that the new Labour party is not just the overwhelming democratic choice of members, but also – with a mass activist base and a mostly popular programme – the only electable version of the Labour party in the current climate. For the left’s part, we must recognise that the coalition that has built around Corbyn is just the core of a much wider set of alliances – inside Labour and perhaps beyond.