Perils of patience PC passes battered buck Aug. 27: The rupee sank today to an all-time low of 66.30 against the dollar â€” recording its biggest percentage fall in 18 years â€” and the sensex shed almost 600 points, prompting the Union finance minister to speak of the â€œdifficult pitchâ€ he inherited from his predecessor. Investors pounded the Indian currency and domestic stocks, apparently spooked by fears that the Food Security Bill passed in the Lok Sabha yesterday would weaken the governmentâ€™s resolve to curb spending in an election year. The food bill, widely seen as a critical element of the UPA governmentâ€™s strategy for re-election, will raise the food subsidy bill to Rs 1.3 trillion, threatening to undermine efforts to cap the fiscal deficit at 4.8 per cent of the GDP this year. Markets were worried that if that happened, global rating agencies would not hesitate to downgrade Indiaâ€™s rating to below investment grade. The country could be facing more trouble on the import front as oil prices rose to a six-month high today as western powers readied a military strike against Syria. The rupee had started sliding on these fears in the morning and ended a skittish day of trading at 66.24 to a dollar, a fall of 194 paise, or just over 3 per cent. The bellwether index of the Bombay Stock Exchange plunged 590.05 points to close at 17968.08, which wiped out investor wealth of Rs 1.69 trillion. Finance minister P. Chidambaram cut a brave front in Parliament even as the Opposition slammed the government for failing to stem the slide of the rupee. The Indian currency has fallen 16 per cent since January and now ranks as the worst performing Asian emerging markets currency. â€œWe have to be patient. We have to be firm. We have to be clear-headedâ€¦we have to strengthen the fundamentals of the economy,â€ Chidambaram told irate lawmakers who were quick to blame the governmentâ€™s economic policies for the turbulence in the markets. â€œWhen I took over (as finance minister) in August 2012, I knew that I was returning to a difficult pitch,â€ Chidambaram said in his defence. â€œFiscal deficit limits had been breached. The CAD had swelled. These were the two main challengesâ€¦.â€ He said the seeds of the current crisis were sown between 2009 and 2011 â€” a reference to a period when then finance minister Pranab Mukherjee had cobbled an economic stimulus package to stave off the impact of the global financial crisis. However, the first stimulus package of Rs 20,000 crore was announced in December 2008 by Prime Minister Manmohan Singh, who handled finance till Mukherjee was given charge of the portfolio in January 2009. â€œWe allowed the fiscal deficit target to be breached and we allowed the current account deficit (CAD) to swell,â€ said Chidambaram, a comment that many interpreted as a thinly veiled criticism of his predecessorâ€™s handling of the economy. In 2011-12, the fiscal deficit had leapt to an unprecedented 5.7 per cent of the GDP, wrecking the governmentâ€™s finances. Chidambaram said he had been able to cap the fiscal deficit at 4.9 per cent in 2012-13, lower than the 5.2 per cent mentioned in the revised estimates in the budget. He assured Parliament that the fiscal deficit target of 4.8 per cent of the GDP set for this financial year would not be breached. â€œI have already said that 4.8 per cent of the GDP and the absolute number that was indicated in the budget (Rs 5.42 trillion) is a red line. The red line will not be breached,â€ he said. But the bigger worry has been over the CAD, which surged to $88.2 billion in 2012-13 and has been projected at $70 billion this year. The CAD is a deficit that arises because of the gulf between monetary receipts and payouts arising from two-way trade and financial transfers. The CAD is usually financed out of foreign fund flows. Last year, the gaping hole was easily papered over because of strong foreign fund flows. This year, it is proving to be a struggle because foreign investors have been pulling out their money, disenchanted by the returns in India and scared over the financial turmoil anticipated next month when the US Federal Reserve starts winding down its $85-billion-a-month bond-buying programme. Chidambaram described the US decision as a â€œcompletely unexpected eventâ€. Foreign institutional investors have dumped stocks worth $813 million in the past six trading sessions. If the foreign fund flows are not enough to finance the CAD, India will have to dip into its foreign exchange reserves estimated at $278 billion â€” which is just enough to pay for seven months of imports. The import cover ratio is the lowest in a decade. Global rating agencies have warned that they could downgrade Indiaâ€™s rating if it isnâ€™t able to bring its twin deficits â€” fiscal and the CAD â€” under control. A downgrade will reduce Indiaâ€™s rating to junk bond status, complicating plans to float a sovereign bond issue that the government has said is one of the options on the table to fight its way out of the mess. The fiscal deficit is projected to go down to 4.2 per cent in 2014-15 and 3.6 per cent in 2015-16, the government said in its medium-term expenditure framework statement submitted to the Lok Sabha today. Global rating agency Fitch had warned yesterday of a rating downgrade if the country misses its fiscal deficit target. Standard & Poorâ€™s is the only one of the three major credit agencies to have a negative outlook on Indiaâ€™s BBB-minus sovereign credit rating. On Monday, the cabinet committee on investments fast-tracked approvals for 36 infrastructure projects involving an investment of Rs 1.83 trillion. â€œWe are trying to kick-start the investment cycle,â€ Chidambaram said. â€œOnce the investment cycle picks upâ€¦ I am sure it will have a positive impact on the economy and in particular on the current account deficit.â€ Perils of patience ***************************** Where are we heading? What does the future hold for us? Doom and gloom? Chidambaram claims, "I have already said that 4.8 per cent of the GDP and the absolute number that was indicated in the budget (Rs 5.42 trillion) is a red line. The red line will not be breached,â€ The poor chap does not realise that he has been lying through his teeth every time and so who will believe him?