At 80 per dollar, is the rupee still alive according to our PM?

On 28 May 2013, the Rupee was quoted at Rs 55.97 for 1 USD. Three months later, the Rupee plummeted by 23% to Rs 68.83 to a dollar. Those were the dying months of the Manmohan Singh government, and the challenger was leaving no stone unturned to mock the then PM. The falling rupee gave him an apt scope to deride the union government. 

Expressing serious concern over the continuous fall in the value of the rupee, on 24th August 2013, at a function at Rajkot, the challenger said, “Today our currency is on its deathbed. It is in terminal stage and urgently needs the attention of a doctor.” Further, he said, “There was a time when the Indian rupee was making lots of noise. But today it has lost its voice. And similarly, we are unable to hear the voice of our Prime Minister. Both have turned mute.”

That was when the rupee was at 68 against the dollar. Now it has breached the symbolically key level of 80. The challenger of 2013 is now the Prime Minister.  He, Narendra Modi, has so many resources under his control now. But like Manmohan Singh, he too has not found the ‘doctor’ he talked of in 2013. The question that begs an answer is if at 68 vis-à-vis a dollar our rupee was on its ‘deathbed’, and ‘in the terminal stage’, is it still alive at 80 vis-à-vis a dollar? Or is it dead?

Well, the politicians do not answer uncomfortable questions. So, we will never get the answer. But we will feel the consequences. The present free fall of the value of the rupee is a pointer to the fact that we are still a vulnerable economy. The tall talks of becoming an economic giant are all pretense. Thanks to economic liberalization unleashed by Narsimha Rao in 1991, we have traveled a long, long way from a sick, controlled economy, but a much longer road is ahead before we reach a position of strength.

This time the fall of the rupee is mainly due to monetary tightening by the Federal Reserve that is being mimicked by the major central banks across the globe. It has particularly hurt the developing economies as an exodus of hot money from these countries to the US is being witnessed. While many economies have been hurt by it, India will feel the heat the most due to several reasons. First of all, it will be ravaged by record-breaking crude oil prices, which will pump up the cost of India’s imports, thereby widening our trade deficit. That brings us to the second important point, that of the current account deficit. It is the difference between a country’s imports and exports. If a country’s import value is less than the value of its exports, we have a current account deficit, and it is adversely affected by the fall of its currency. If the value of exports surpasses that of imports, it has a current account surplus and is much less vulnerable.

As per the provisional figures released by the Reserve Bank of India (RBI), In FY’22, India’s current account deficit will be around $38.7 billion, a sharp reversal from a surplus of $23.9 billion in FY’21. The figure for FY ’21 was however an aberration. India recorded a surplus after 17 years in FY’21. It was because of the low demand for fuel oil and inputs for the factories due to Covid-19. Talking about the short-term future, there is little scope for repeating the feat. So the falling rupee will stay a heavy burden for some years now unless a reversal of the exodus of hot money is witnessed. 

Now comes the third point, which will probably hit us the most this time: The fuel inflation (as crude becomes costlier in rupee terms) will affect all other commodities, particularly food and fertilizer. It will give a boost to the already high rate of inflation, and in turn, will further erode the purchasing power of both the middle class (salaried and pension or fixed-deposit interest-dependent people) and the poor Manmohan Singh paid the price of his failure on the economic front and huge corruption at the highest level of his government. But Narendra Modi is luckier, for he will not face any stiff opposition even in 2024. Furthermore, he enjoys the advantage of a divided and ineffective opposition. So he has no political need to answer whether the rupee is still alive or dead.

—-INDIA NEWS STREAM