The World Economic Forum’s India Economic Summit this week had its predictable share of praise for India’s growth efforts. But it also brought out risks that India’s growth ambitions face in everything ranging from climate change and oil prices to battling diseases and ensuring adequate fresh water. Voices at the summit echoed the new ambition of Indian corporate leaders to further their overseas acquisitions to build size, scale and competencies. But, on the very day that the summit was winding up, we had Commerce and Industry Minister Kamal Nath warning about the possible loss of 20 lakh jobs as a result of difficulties being faced by export-oriented industries, especially textiles. The rupee has lost about 15 per cent against the US dollar since October 2006. What that means to the economy depends on who one is talking to.
The rupee has become a double-edged sword for India’s industry. If you are an importer, you gain, and if you are an exporter, you worry. If you are acquirer overseas, the dollar is easier to buy. A day after Mr Nath’s warning in Parliament, a survey by the Federation of Indian Chambers of Commerce and Industry revealed a five-year low in business confidence. While firm interest rates and a home loan crisis in the US are among factors that have led to this, there is little doubt that a strong rupee is making some industries apprehensive. Textiles, chemicals, agro-based industries and electronics are among the most vulnerable. Meanwhile, the government is broadly committed to a low-import duty regime in world trade, while global oil prices remain high. The high prices have not been passed on to the consumers yet, which means that there is an undercurrent of inflationary expectation in the economy.
The India Growth Story is intact, but short-term economic management involves challenges for the ruling leaders as they face the Gujarat assembly elections. Soon, we will also be witnessing a mood for general elections. A globalised India engaging voters in its vast and heterogenous hinterland will not be an impressive sight for politicians, who must walk a razor’s edge. The rupee’s two-way effect symbolises that edge. For economic managers, this is a time to be wise. The need of the hour is to be pragmatic and balance the interests of all stakeholders while keeping the long-term direction of the economy firmly aligned with a larger global market.