The worst time for rupee yet to come.... Indian economic recession ?

Discussion in 'Politics & Society' started by sesha_maruthi27, Aug 1, 2013.

  1. sesha_maruthi27

    sesha_maruthi27 Senior Member Senior Member

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    Govt struggles to defend rupee as 1991-like crisis erupts

    The RBI intervened in the foreign exchange market on Thursday to stop the rupee's slide toward a record low as its defence of the currency, built around draining cash from money markets, came under rising pressure.

    With the Reserve Bank of India struggling to hold the line, investors are sceptical whether the government will take swift, credible action to reduce a gaping current account deficit despite Finance Minister P. Chidambaram's assurances.

    "The market wants real action," said Param Sarma, chief executive at NSP Forex, a consultancy firm in Mumbai. "The government and RBI want to keep rupee under control to check inflation and to ultimately reverse tightening measures so they can support growth."

    Sarma, along with many others, believes the government could opt to issue a bond aimed at drawing inflows from expatriate Indians, as the central bank has voiced its opposition to a sovereign bond issue.

    The rupee has lost 11.4 per cent since the start of May, and by mid-morning it was quoted at 60.54 per dollar, as RBI dollar selling brought it off a session low of 60.8325 and forestall a move back toward a July 8 record low of 61.21.

    The need to shore up the economy with economic reforms is becoming more urgent given the prospect the Federal Reserve will at some point start removing its U.S. monetary stimulus, making the global investment environment even more difficult for India.

    Goldman Sachs downgraded Indian equities to "underweight" from "market-weight" late on Wednesday, noting the RBI's liquidity tightening measures are adding to the woes of an economy that grew at a decade low of 5 per cent in the last fiscal year and is showing "no signs" of a pickup in investment demand.

    A survey of the manufacturing sector released by HSBC on Thursday showed the slowdown in Indian factory activity deepened in July as order books shrank by the most in over four years.

    Investors worry Prime Minister Manmohan Singh's weak, minority coalition will be prevented from taking bold action as it faces political gridlock ahead of general elections due by next year.

    "Although the government has taken many policy initiatives on the infrastructure front and pushed through various reforms so far this year, markets may get worried about the potential policy paralysis ahead of the general elections," said Goldman Sachs in its downgrade note.

    "The various government policy reforms are the key to kick-start the investment cycle and unclog the structural bottlenecks at the expected pace, especially on the infrastructure front."

    ECHOES OF '91

    Both Citigroup and Deutsche Bank have this month downgraded India's economic growth forecasts, citing in part the prospect that the RBI's measures will dampen investment.

    Chidambaram said on Wednesday the government was looking into various options to attract inflows, including relaxing overseas borrowing rules and curbing some imports.

    The economy is stuck in a quagmire of low growth, persistent inflation, a wide current account deficit and a rapidly weakening currency, but policy measures to tackle any one of these will likely worsen the others.

    By virtue of being a net importing country, a weakening currency quickly inflates India's import bill leading to higher inflation and a wider current account deficit, which in turn pressures growth and the country's foreign exchange reserves.

    While holding policy rates steady on Tuesday, the RBI said it would roll back its tight liquidity strategy once the currency market stabilises, but the high short term interest rates have already forced some banks to put up lending rates, hurting prospects for investment and economic growth.

    The liquidity squeeze has caused bond yields to surge. Benchmark 10-year yields are up around a half percentage point since the RBI's measures, raising the risks that borrowing costs will rise across the board.

    Foreign investors have been heavy sellers of India debt, having sold almost $9 billion in bonds since late May, and a little under $2 billion in stocks since then.

    The central bank has been spotted intervening since May, and as of July 19 its foreign exchange reserves stood at $279.20 billion, roughly enough to cover 7 months of import cover. Reserves have fallen from a 2013 peak of $296.37 billion, but not all of the decline is due to currency intervention.

    Analysts say that ultimately reforms need to be deepened, perhaps on the scale of 1991, when a balance of payment crisis forced India to liberalise its economy.

    "The real solution lies in improving the investment climate by giving a strong push to structural reforms the way it was given in 1991-92 and stimulating key exporting industries," said Rupa Rege Nitsure, chief economist of Bank of Baroda in Mumbai.

    Govt struggles to defend rupee as 1991-like crisis erupts - NDTVProfit.com
     
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  3. sesha_maruthi27

    sesha_maruthi27 Senior Member Senior Member

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    Re: The worst time for rupee yet to come.... Indian economic recession

    Who is answerable to this?

    Scam after scam and after looting the whole country for 1 decade of the UPA government, at last at the time of 2014 elections it is seen that Indian economy has gone down to the same as in 1991.

    How will we get the money which was looted from the scams?

    First of all were is the money and who is having it ?

    If we know the person, will anyone dare to tell the name ?

    What will be the situation if the economy is down like a nuclear melting.....?

    What can the people of India expect now or in the near future ?
     
  4. sob

    sob Moderator Moderator

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    Re: The worst time for rupee yet to come.... Indian economic recession

    The biggest problem is for the economy is the Current account deficit.

    Our FM has been promising that he will cap it at 4.8% of the GDP but there some factors he is trying to hide with a sleight of hand

    1. Oil subsidy is not in control Rs. 20,000 Cr was budgeted in the Union Budget, but already the Oil Minister is asking for Rs. 60,000 to 70,000 Crore more. ( Oil Min to seek Rs 60-70k cr relief for OMCs: Sources - CNBC-TV18)

    2. FSB is going to cost huge sums which has still not been quantified. As per the Food Minister the figure is Rs, 1.25 Thousand crore for the first full year. As almost half the year has passed the figure will be Rs. 60,000 Crores against budgeted Rs. 15,000 Crores

    3. Disinvestment Target Rs. 40,000 Crores. Achieved till date Rs. 1000 Crores.

    4. The assumption was that the GDP would grow around 5.5%, but indicators are that best it would be around 5%. so with the denominator decreasing the ratio of CAD to GDP will only increase.

    FM Mukherjee had carried out fudging of figures for his period of 3 years and the hens have come to roost now. My advice would be bet on gold stay away from Real Estate.
     
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  5. sob

    sob Moderator Moderator

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    Re: The worst time for rupee yet to come.... Indian economic recession

    Okay so the figure for the 1Quarter of this year are out and the situation is quite grim.

    In absolute terms the Fiscal Deficit for Q1 is almost 50% of the budgeted full year figure. This is going to put a huge strain on the Rs.

    Q1 fiscal deficit almost half of target

    Good news for the Government was the drop in Gold imports and they managed to increase the price of diesel. More steps needed to be taken by the Government and they have to be taken urgently.
     
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  6. SLASH

    SLASH Senior Member Senior Member

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    Re: The worst time for rupee yet to come.... Indian economic recession

    I would not worry too much about the rupee. Let the market forces decide which way it will sway. Atleast as long as the rupee is weak the government will be under pressure to go in for some more reforms.
     
  7. kseeker

    kseeker Retired

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    Re: The worst time for rupee yet to come.... Indian economic recession

    You mean to say SCAMS ?

    Please don't expect any reforms from those Congress SOBs.
     
  8. SLASH

    SLASH Senior Member Senior Member

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    Re: The worst time for rupee yet to come.... Indian economic recession

    They will have to. They do not have much choice. If they don't the rupee will climb to Rs.65 and beyond in short term.
     
  9. hello_10

    hello_10 Tihar Jail Banned

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  10. VIP

    VIP Ultra Nationalist Senior Member

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    Re: The worst time for rupee yet to come.... Indian economic recession

    What side effects will this food security bill bring ??

    Sent from my Nexus 4 using Tapatalk 4 Beta
     

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