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

Anoosh Chakelian
Show Hide image

A view from Brexitland: Boston, the town that voted strongest to leave the EU

This little pocket of Lincolnshire is waking up to the realisation that its voice has finally been heard.

It’s market day in Boston. Stall owners are setting up, chattering and squinting in the crisp morning sunshine. Trade yawns into life amid the stands of fruit, squat pots of begonias, secondhand comics and pet supplies, as it does every Saturday.

But this isn’t every Saturday. The little Lincolnshire town is waking up to the realisation that its voice has finally been heard. It has returned the highest Brexit vote in Britain, with 75.6 per cent voting to leave the European Union. An aim that has boiled beneath its quiet, quaint surface for years.

Described by the Mail three years ago as “the town that’s had enough”, Boston is home to the highest concentration of EU migrants after London. In the period between 2004 and 2014, the migrant population increased by 460 per cent. Of the 64,000 people now living in the borough (some officials believe the real figure could be 10,000 more), about 12 per cent were born in EU countries.

This is a monumental demographic change for a sleepy farming town that was almost entirely classed as “white British” in 2001 (the constituency of Boston & Skegness is now 86 per cent white British, and 10.8 per cent “white other”).


West Street, Boston. Photos: Anoosh Chakelian

The new Bostonians are chiefly Polish, Latvian and Lithuanian – I also hear smatterings of Russian as I wander around. The market square is filled with elderly English people, gossiping and enjoying cooked breakfasts in the sun, young men excited about the Poland v Switzerland match that afternoon, and families of all backgrounds. It’s a mix, but anxiety about people speaking different languages is voiced by nearly every born-and-bred Bostonian I meet.

“If you close your eyes, you can sometimes only hear eastern European voices, and that can be scary,” remarks Paul, a 59-year-old engineer perusing the fruit stands. “Because of the language barrier, they all stay together, almost like a ghetto. People are people wherever they come from, and we wouldn’t have a maternity unit without them, but it’s been too fast. Integration takes time; you can’t do it instantly.”

“People joke here that you can walk through the town and not hear a single English person,” adds Chrissie Redford, a chief reporter at the Boston Standard, during a coffee break from reporting. “And that’s happened to me. My concern is now so many people have voted, whether that rift will get deeper.”

Three Latvian men in their thirties are sharing a beer in the nearby churchyard. Boston’s tall, distinctive medieval church tower, known affectionately as the Stump, looms over them. “What happens now?” asks Vitels, who is rolling a cigarette. He has been working factory shifts here. “I can’t go back to Latvia, there are big problems there. Romania, Bulgaria, everywhere there has been war. Nobody wants to live like that. [Brexit] makes me feel bad. People think I’m difficult, because I’m foreign.”

“The economy in Latvia is not good, but in Britain it’s very good,” frowns Gatis, who is self-employed. “Why are we here? Because we live much better here. It’s nicer.”

The English agree, which is part of the problem. “It’s a really good way of life in this area, and that is why it went so heavily for Out,” Mike Cooper, the tweed-clad owner of a local car museum, and Tory borough councillor, tells me, as we weave between the market stalls. “People feel that the massive influx is eroding their way of life. We’re not being racially intolerant; we’re living with it day to day.”

Cooper voted to leave, but there is no spring in his step. The local politicians and farm and factory owners know that this town relies on migration. Eastern Europeans settle in Boston because there is such a demand for agricultural labour, and for food manufacturing workers. Most of the vegetables we buy in our supermarkets are grown in Lincolnshire.

The perception persists among some I meet that migrants are “taking jobs from our own people”, but unemployment here is comfortably below the national average. The council estimates that around 20,000 economic migrants work in the Boston area, whereas the current number of people claiming unemployment benefits was just 630 on the last count, according to Office of National Statistics figures from May.


Boston voted for Brexit by 75.6 per cent.

But such a large low-paid workforce does cause difficulties. The average wage here has been forced down (£9.13 an hour, compared with the £13.33 national average) by employment agencies hiring cheap, flexible labourers. Similarly, rents have been driven up disproportionately by landlords taking advantage of the newcomers’ willingness to live ten to a house.

But migrants complain that they receive the blame for this, rather than those abusing their vulnerability. “It’s quite sad, because it looks like [politicians] aren’t interested in these things,” says a 40-year-old construction worker, Zee Barbaks, who campaigns against exploitative gangmasters. He and his wife, both Latvian, arrived in Boston 11 years ago. Before their two young children were of school age, they alternated factory shifts in order to look after them, “swapping them over in the car park”. I sit on a park bench with him while his son scampers around the playground.

“Agencies keep people out of holiday money and sick pay, they make them pay their wages on accommodation,” Barbaks says. “When women get pregnant they don’t give them work. Sometimes they use three people for one job – so those people are getting nothing.”

He is saddened by the huge local Brexit vote: “Ten years ago, Boston was empty. Before, every second shop was closed on West Street,” he says. “If you look now, there are loads of changes in a good way, eastern Europeans starting businesses. But now, if they stay out of Europe, in ten years’ time, it’s going to be like it was ten years ago. They’ve just done ten steps back.

“I understand that it is loads of people who have moved in, but if the agencies were sorted out, there would probably be less people here. This is what the government should be looking at.”

But it’s a perceived cultural divide, rather than material concern, which has driven Boston so strongly towards Brexit. Even the Ukip deputy leader of Boston Borough Council, Jonathan Noble, concedes that West Street was a ghost street when recession hit before the migrants set up shop (“so they have done some good here”).


Councillor Noble thanks Boston for voting Leave.

Although people worry about pressure on public services – difficulty getting school places and GP appointments, in particular – the local economy is healthy. The message they have sent to Westminster is a plea for identity.

“We’re British,” shrugs Mike, a 66-year-old retired lorry driver sitting outside a café. “I don’t care if prices go up; at least we’ll be running ourselves. We’re top of the league for wanting them [migrants] out. Some of the Polish people are nice, but there are too many.

“Barack Obama, flipping David Beckham, Bob Geldof, Cameron saying it’s good to have them here – that made me more determined, I got fed up with it. All the money is down in London, it’s disgusting. [Immigration’s] gone too far anyway, I doubt much will change. We should’ve listened to Enoch Powell. Good old Enoch,” he chuckles. His wife gives him a stern look.

“I’ve heard there’s a sign on a shop in West Street that says ‘No English’,” adds his friend Fred. “I might want to buy a Polish cake. But they don’t want to mix with us.”

Walking up and down West Street – where there are numerous eastern European restaurants, Baltic food stores, a Latvian bakery and Polish pub, and roars of “Polska!” from football fans – I can’t find that ‘No English’ sign. I doubt it exists. But it’s the perception that’s telling. English locals are the ones who feel unwelcome, far more so than their European neighbours (those I speak to are overwhelmingly positive about their hometown). They also feel their views are unwelcome in Westminster.

“We’re the ones living it,” says Chris Pain, who has owned a number of businesses in Boston and sits as an independent on Lincolnshire County Council. “When in London they say ‘we need more people’, we know that’s not true. They like it [immigration] because they can eat in nice restaurants and have people from abroad doing their menial work.”

There is hope for integration in a post-Brexit Boston, however. Young people I speak to are far more positive about their foreign neighbours. “I’ve grown up with knowing the EU,” says Kirsty, a 21-year-old graduate training to become a teacher. “I have no problem with the other communities. I’ve worked in McDonald’s and cafés around here with people from Poland, Lithuania and Latvia and they’re absolutely wonderful. People need to learn to understand each other more – actually communicate. And they don’t; that’s why there’s a misunderstanding.”

Also hinting at a more harmonious future is Sylvia Giza, 38, who has lived in Boston for 12 years. She works behind the counter of a Polish butcher’s off West Street. “We pay tax, we are educated, we buy a house. We’re not scary. I have three children, they go to school and learn English, and now they are speaking in English to me at home! So I take the book and try working and reading,” she grins, turning to her next customer – an English woman surveying the array of Polish sausages.

Anoosh Chakelian is deputy web editor at the New Statesman.