by Dr. Sanjay Goel
A poverty-stricken country has to manage inflation as a priority but growth can not be undermined. To keep the inflation low, the government has been raising the interest rates and lowering the exchage rates. Now, the demand is being forced downwards, and supply is being glutted by making your own exports uncompetitive. I think, this is the most regressive strategy that I have ever heard of. When you need growth, you have to live with inflation to boost the demand, which in turn boosts supply. And you have to weaken the currency to boost your exports to surface yourself in geo-economic power-game, which gives you major strategic advantages. Every country did this when they needed, US in 1900, Japan in 1950s, China till date. So, India should also keep its currency weaker.
With unchecked exchange rates, Indian exports have started becoming uncompetitive. The only star sector – IT, which built an image for India, has started losing out to competition. Secondly, the Indian manufacturing sector, which gives only 19% of GDP (a horrific number compared to China 40%, Europe 30%), is in shambles. With low exchange rate, imports will become attractive and Indian manufacturing will get killed. There is dire need to depreciate Rs.A uni-polar world (dominated by US/Europe supremacy) and the current geo-political situation doesn’t favor a weak country at all. RBI seem to be complacent about $100+ billion reserves. Now, we do not live in times when a country was expected to have reserves enough for its 3 months imports bill. Today, a decent economy needs to talk of having 30-40% of GDP as reserves, especially when India depends on 70% energy/oil imports, 25% metal imports, 50% machinery imports, 10% agricultural imports. Given India’s $1 trillion economy, the target reserves should be $300-400 billion. So, RBI needs to buy more US$. Every economy and society moves in sine curve with varying wave lengths, spanning 100, 200 50 years…….However if this is the way things go, the Indian growth story will be "the shortest story ever" unless RBI takes immediate steps to start buying US$. nu003cdiv> u003c/div>nu003cdiv>Hard to believe if Indian politicians can be that stupid, unless they have been confused or swayed by an external agency. It seems more like a gameplan of US/European strategic think-tanks to slow down India and China using different strategies. We are already seeing the backlash on Chinese exports, because China refused to upvalue Yuan. However, the same threat seem to work for India.nu003c/div>nu003cdiv>u003cbr clearu003d”all”>Bottom line: Rs. should go back to 45.u003c/div>nu003cdiv>u003cbr>Regardsu003cbr>Sanjay Goel u003c/div>n”,0] );
Hard to believe if Indian politicians can be that stupid, unless they have been confused or swayed by an external agency. It seems more like a gameplan of US/European strategic think-tanks to slow down India and China using different strategies. We are already seeing the backlash on Chinese exports, because China refused to upvalue Yuan. However, the same threat seem to work for India.Bottom line: Rs. should go back to 45
(Dr. Sanjay Goel is a Fellow from Indian Institute of Management, Bangalore (IIMB) and has 15 years experience in Business consulting. He has also taught at the LBS Academy of Administration (IAS) in India)
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